Shalby (NSE:SHALBY) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Shalby Limited Q2 FY 'twenty seven Earnings Conference Call hosted by Dare 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. Kashish Thakul from Milare Capital. Thank you, and over to you, sir. Please proceed. Thank you, Shalinda. Good afternoon, everyone. We welcome all the participants to Shalby Limited q two financial year twenty seven earnings call hosted by Lara Securities.

0:53 Today, we have with the senior management representatives from Shalby. We will start with performance highlights from president of Shalby Limited, Mr. Sanesha, and Mr. Amit Kumar, group CFO. After that, we will open the floor for question and answers for all the participants. I will now hand over the call to Mr. For important disclaimers regarding any forward looking statements that may be made in today's call. Over to you,. Thanks, Kashish. Good afternoon, everyone. Our investor presentation is uploaded on the stock exchange website and our company website, shalby.org. We do hope you have already had the opportunity to go through the presentation. Please note that some of the statements made in today's call may be forward looking in nature and may involve risks and uncertainties.

1:44 Kindly refer to Slide two of the investor presentation for a detailed disclaimer. Now I would like to hand over the call to Mr. Shanesha for his opening remarks. Thank you and over to you. Thank you, Jigar. Good afternoon, everyone, and thank you for joining us. I'll take you through the key operational developments for the quarter across our two businesses, Shalby Hospitals and Shalby Medtech before handing over to our CFO. The hospital business remains the core of the group and this quarter's growth was broad based. Joint replacement continues to grow and remains our flagship specialty. Growth was faster in other specialties, particularly nephrology and urology, oncology, general surgery and critical care.

2:32 As a result, our specialty mix is becoming more balanced, which is in line with our strategy of building a multi specialty network and reducing dependence on any single specialty. We are continuously adding specialist doctors across the network and this will be a key driver of future growth in the hospitals business. Operationally, occupancy improved, average length of stay came down and the share of insured and government scheme patients has gone up. On clinical capabilities, a few developments this quarter. Orthopaedics continues to establish Shalby as a global center of excellence. This quarter, we treated a member of the family of the Kenya's Chief of Defense Forces for a hip replacement. A former President of Nigeria returned to Shalby for a second knee replacement two years after his first one with us.

3:24 The incumbent Vice President of Nigeria also visited our Ahmedabad hospital to meet him. We performed Gujarat's first terirobotic surgery at our SG Highway Hospital in Ahmedabad with a surgeon operating remotely from Guru Granth. We continue to expand robotic surgery in oncology and urology. Our transplant program is now active across five hospitals, Ahmedabad, Indore, Jaipur, Surat and Delhi LCR. It covers kidney and liver transplants, including swab and blood group incompatible kidney transplants. We also handled several complex referral cases, including international patients in neurosurgery and in ENT.

4:10 In diagnostics, we added an advanced infection diagnosis system, the first of its kind in Gujarat, along with liquid based cytology for cervical cancer screening and automated testing that has cut several report turnaround times from days to hours. We are standardizing clinical protocols across hospitals, strengthening quality assurance and improving the patient journey from admission through post discharge care. We are also integrating operations more closely across the network so that practices that work in our better performing hospitals can be replicated elsewhere. We are also driving operational efficiencies across the hospital business in the first half of the year.

4:56 These have already started to show in several areas of outsourced manpower and we expect this to continue. We have also taken initiatives on materials and consumables, which are a large share of our costs. We expect the benefits to start flowing into the P and L from quarter three onwards. Some hospitals are still operating below their potential. Our focus there is on improving the utilization of existing infrastructure and tightening operational discipline rather than adding new capacity. Our Delhi NCR Hospital, Shalby International continued to improve significantly during the quarter. Within the hospital business, the Shalby Academy has added several new several 100 new students and trainees this year across nursing, physiotherapy, allied health and hospital management. It gives us a steady pipeline of trained staff for our hospitals.

5:53 On the Shalby MedTech front, to begin with the commercial side, we have started target surgeon engagement through fellowships, clinical education and product demonstrations along with in clinic branding. We entered the West Bengal and Odisha market and made our first significant appearance in Eastern India at AOTS in Kolkata. We are reactivating Central India, including Nagpur and Assam, Uttarakhandan next. Internationally, we are present in North America, Japan, Indonesia and have received approvals from Malaysia, Argentina and Nepal and have further approvals in progress. On the manufacturing and quality side, we have increased processing volumes in our Clean Pat and sterile operations, which improved product availability.

6:44 We reinstated the passivation line in house and recommissioned the secondary clean line to add capacity. We improved inspection processes to reduce turnaround times. Quality control non conformances came down significantly. First pass acceptance improved and defects in scrap from contract manufacturers reduced. These steps improve yield and reduce rework and they put the business in a better position to handle higher volumes. Alongside this, we are putting in place a new supply chain for the MedTech business, which we expect to significantly reduce our cost of goods sold. We expect the benefit to start accruing in the P and L from quarter four of this year with a full quarter impact coming from quarter one of FY twenty twenty eight.

7:33 So if I have to summarize the priorities for the next half of this fiscal year for us, they would be number one, keep adding specialist doctors in the hospitals business and building our capability in the orthopedic and non orthopedic specialties to drive growth and utilization across the network. The second would be improved performance at hospitals that are below their potential with a focus on asset productivity and operational discipline. At MedTech, the third point would be to complete the transaction to the new supply chain, sustain the quality and capacity improvements and convert surgeon engagement and new geographies into volumes. And the fourth one would be continue to invest in people, the clinical capability, technology and the ahead.

8:21 Our focus is on the quality of growth, operating efficiency, asset productivity and sustainable profitability. With our key investments largely in place, we expect CapEx requirements to be lower going forward. Combined with the efficiency initiatives that I have outlined, this should further strengthen cash flows and support the debt reduction over time. With that, I'll hand over to our CFO, who will take you through the financial performance for the quarter. Thanks, Shalby, and good evening, everyone. Now I'll walk you through the company's consolidated financial performance for the quarter two of FY twenty twenty seven. I'll compare the number on year on year basis, meaning the current quarter of Q2 versus the Q2 of the last year.

9:07 For the Q2 of twenty seven, the company delivered a healthy improvement across all the financial KPIs, including below. The consolidated revenue has grown to $3.18 crores versus the INR $2.90 crores in the last year, with registering a growth of approximately 9.8%. Avita stood at about INR 46.4 crores as against INR 46.1 crores in the last year, reflecting a growth of 0.8 on a year on year basis. EBITDA margin has held a strong about 14.6% compared to 15.9% in the corresponding quarter last year. Consolidated PEGBT stood at INR 16.5 crore as against INR 19.1 crore in the quarter two of the last year, with a PBT margin of 2.5 with a PBT margin of 5.2%.

10:00 The consolidated PAT has grown to INR 7.9 crores with a PAT margin of 2.5% in the quarter two of FY 'twenty seven and again INR 7.9 crores in the PAT margin with a 2.5% margin in the last year in the quarter two. Our balance sheet remains strong with a gearing ratio of 0.45x and net debt of INR $4.58 crore of crocs. Importantly to note, our net debt has decreased in this year, and we are very confident of seeing a further reduction in the coming quarters. Now on the stand alone basis, I'll walk you through the same KPIs at a hospital level. The stand alone revenue in the quarter two has stood to INR $2.50 crore as against INR $2.29 crore in the last year, reaching a strong growth of 9.1% on a year on year basis.

10:54 Our EBITDA has stood at INR 45.7 crore as compared to INR 44.8 crores in the last year. The margin has stand by stood by 18.2% as against 19.5% in the corresponding quarter last year. The PBT has grown to INR31.6 crores as against INR30.6 crores in the last year with a PBT margin of 12.6. The PAT has further also grown to INR23.5 crores as compared to crores in the quarter two of the last year. This has a margin of 9.4% as against 8.6% in the quarter two of last year. At the stand alone level, the debt has also declined at net stand alone level to 14.5 crore as against 54.5 crore in the last year. The annualized ROCE now stands at 9.4%.

11:55 Our ARPUP has significantly jumped to 42,581, which is up by 4.3% as against 40,794 in the last year. Our loss has also improved to three point five eight days as against three point seven four days in the last year. Further, our occupancy has jumped to 52%, up by 400 basis points, meaning 48% in the quarter two of the last year. And if we exclude our Gurgaon unit, the Shalby International, our occupancy has jumped to 55% as against 50% in the last year. The payer mix in the current quarter remains at about 33% self pay, 38% insurance and approx 29% in the government payers.

12:44 Now importantly, coming to our Gurgaon unit, the Shalby International, As long awaited, it has delivered a very strong growth of about 50% on year on year basis to its revenue. The revenue has jumped to approx INR30 crores as against INR20 crores in the quarter two of the last year. This has demonstrated a strong growth and we are very confident to see a similar level of the growth trajectory to continue in the coming quarters and the year after. This has been supported with a significant jump in our ARPOP, which now stands at about 96,388, which is 18% higher than the last year, which was at about 81,185. The loss stands at about 300 the loss stands at three point three days.

13:33 Also to mention, this is for Gurgaon unit a consecutive EBITDA positive in both the quarters and at H1 level, the unit is positive. And now we are looking at the cash breakeven of this unit at very soon, probably near the exit of the quarter four. This is supported with a higher occupancy, higher ORBOP and also growing business on domestic and international side both. Just to mention you the comparison of our international and domestic growth, The business has grown on both sides. If we compare to the last year, the domestic business has grown to 56% and international business has grown to about 22%. Moving to our MedTech business, the medical implants.

14:22 Our medical implant business in the Q2, this is quarter of our efficiency program started to show the numbers we have been targeting for a long while, we expect these benefits to build through the rest of FY twenty twenty seven also, with new products, new geography and a stronger supply chain model already being initiated in the H2 of this year. Our consolidated revenue now stands at about $316,000,000 The SMTL, the parent entity at India has grown by about 40% to $224,000,000 which reflects a growing traction of our products and software execution across India. The U. S. Entity, Entity Inc. Is also stable at about $86,000,000 which grew up by 4% year on year basis.

15:08 This is after full year EBITDA positive last year, the MedTech business has again delivered a positive EBITDA number, which is a fifth consecutive quarter for the MedTech to deliver a EBITDA positive number. Consolidated EBITDA now stands at about INR 3,600,000, which is double than the last quarter of having $1,600,000 of the EBITDA. Our operational efficiencies, as has been mentioned, have started reflecting in Q2, and we expect full year benefit to come in the FY twenty twenty seven. As Shalby already briefly touched upon our next level of the growth, which is the gross margin, we are very confident to see our profitability to further increase from here with our new supply chain model or the steps being already initiated and it would take its full benefit in the Q4 of this year.

16:03 Further, we are also expecting a further NPPF price revision, which will support our EBITDA and revenue numbers in the India business. On the other side of our inventory, our inventory has fallen 20% year on year in the last two years. And importantly to mention, now in the H1, just in the six months, it has already fallen by 16% and now stands to seven eighty four days, which was about twelve hundred days a year before. With this, we are maintaining the same momentum in our growth with a better gross margin and operational efficiency. We believe H2 will be more exciting from here and we look for a stronger year than the previous year. With this, thank you to our employees, customers, business partners and shareholders.

17:01 We can take Q and A. Sure, sir. Thank you very much. Thank you. We will now begin the question and answer session. Gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Moksh Gulvia from Prosperity.

17:50 And my question to Mr. Saneh. Saneh has mentioned in the opening remarks that the hospital business is a core business activity and most profit generating activity, which is clearly reflected at the stand alone level. Sir, while the business operated at the subsidiary level, particularly the implant business, which was acquired in the 2021, where the... You are mentioning that the EBITDA is positive. But if we compare the PVT level, PVT of stand alone and the difference between the stand alone PVT and consult PVT, the last three year, there was a negative loss from the subsidiary around $1.65 crore... Rupees.

18:37 Can we focus on the hospital business, growing the hospital business at the domestic level? Because many international players are entering into the India. We are very strong at the... For the hospital business. We are running the whole hospital at profitable. Why not we are concentrating only on the hospital business rather than diversifying into the implant business, which is not contributing positively at the PBT level. Can you throw some light on that activity, please? Yes. No, thank you for the feedback and your questions. So see, if you look at the hospital business, it is profitable, it is growing, the underlying potential is solid. We still have a good 50% higher revenue, which we can do in the existing facilities, which will of course bring more than that kind of a number trickling down to the EBITDA numbers because of operating leverage that will come in.

19:36 On the implant side, yes, it has taken us a bit longer, but there have been a lot of positives there. So the cost of manufacturing an implant when we acquired the facility was about $1,100 and it has come down by less than half now and it is going to further come down by an additional 30%, 40% from the current levels with the new supply chain. So the underlying opportunity in that business is also quite strong. And we have prepared a solid base in terms of the new products, the instrumentation that is required, the team that is required to kind of build and grow this business. So we have identified all the capabilities across the different departments. And the positive is that we are not going to deploy a significant amount of new capital in this business because it is going to be self sustaining in a very short period of time. So if you ask me, all the additional internal approvals that will be coming in over the next couple of quarters will all be deployed in the hospital business. So whether it is upgrading our facilities, whether it is upgrading the technology, whether it is adding number of beds, all the majority, I would say 80%, 90% of the new capital is going to be invested in the hospitals business. So I hope that is reassuring to you.

21:00 Yes, But see, I'm investing in the top of the many companies and one of the listed companies in India, namely is TTK Healthcare, which are also having a one segment, hip replacement, hip and knee implant, heart valve, and they are making a good amount of the profit from that activity. But in our case, though, we have a USA FDA, we can export from The USA to many countries, and it is easily acceptable in India also. But we are not the revenue growth is not up to the mark and definitely the profit growth is not up to the mark. Is there anything lacking or because of Vikram by the pioneer in the implant and knee replacement and other operation, his name is enough for the hospital business. Why not we are focusing only on the hospital business?

21:54 So that is what I exactly alluded to that all fresh capital, most of the fresh capital will going forward be invested in the hospital business. Secondly, the revenue in this business for us, if I have to tell you, the reception of the products among surgeons in India and outside has been very strong for our products, not only because it is U. Effective, but also because the design is such. And hence, what we are trying to work on and what was the hurdle for us was really the cost of goods because if you're manufacturing in a country like The U. S, there is a certain cost that is embedded over there. And there's only a limited scope for reduction when you're working in high labor cost markets like The U. S. And hence with the new supply chain, we will start enjoying the tailwinds in terms of having better margins and having a better growth.

22:59 And like you mentioned, TTK has been in the business for several years, but you would be reading in the news that this medical implant sector has been of interest to a lot of different Indian companies as well over the last couple of years. This is after our acquisition. So the timing of our acquisition was absolutely at the right time. It's just that we have to I mean with the new costs coming in, we will be able to deliver much better, stronger set of numbers. And we also believe that going forward, most of the additional internal approvals will be invested in the hospital business. This is coming directly from this mandate is coming directly from Chairman.

23:45 Okay. And when can we expect the at least the Gurgaon facility will contribute positively at the PBT level? Amit, this is Sai. Thanks for the question. And if you would have noticed, Gurgaon unit has already has shown a jump of 50% in the revenue, and it is the second consecutive quarter that the EBITDA is positive. In the exit of the Q3 and Q4, we are expecting it will be cash breakeven also. The occupancy has started growing in and the specialties which we are concentrating are giving us a better yield. So now it is just a matter of time, the team has delivered a stronger result and it will continue. The growth I'll just add to that. The growth has been about 50% on a year on year basis for us, right. And with an additional 20%, 30 of growth from here, we will be PBT neutral from current levels.

24:39 Okay, okay, okay. Then my regards to the Vikram Bhai and happy Diwali in advance and all the best to all the team. Thank you, sir. Thank you. Thank you, sir. The next question is from Mr. Kashish Thakur from Milara Securities. Please go ahead. Thank you. One question regarding this... The Onco price capping. How do we look into it and probably what kind of impact we might have from setting of Beyond Good luck? Yes, thank you. So this notification has come recently and likely to be effective in the mid November. This is about 180 molecules, which have been mentioned about. Yes, we have internally also have a consumption of this in our Onco business. We had done a high level analysis.

25:39 Our margins would not be significantly impacted. We are already in the range which the government is expecting about a 30% margin from the MRP. We may have an insignificant kind of the impact, but it would not be that much. We are already in the control to the expected margin, which government is guiding for. Understood. And any any, like, probability that government, like, guys are hearing or probably you are preparing something that government might put in some capping on consumables or the metric business as well on which we are focusing much? Not likely.

26:24 There is no such current talks in regard to this. Rather on the implant side, we are expecting our NPPA high in this mid of November, which is already due from last two years, and that would be a support to the revenue. One question is towards expansion Sorry interrupt you. I will also add to what CFO just said. So what happens is that most of the surgeries that we do, including oncology, they are all packages. So as such the medicines are not sold separately. So the impact to that extent also will go down substantially.

27:17 Understood. Just reaching like my question to the expansion plan. Any specific expansion plan you would like to share on the call? Yes. So a couple of things. So one is we have heavily invested in technology. Just one second, sorry, hold on. Yes, so a couple of things there. We have significantly invested in upgrading our technologies, including robotics across most of our hospitals. We have also added the high end radiology equipment like the linear accelerators and and bunkers at other places as well. We have invested in a new PET CT scan. A lot of investments on technology over the last one year.

28:09 And we also are expecting to utilize the additional SSI that we have in the Gurugram Hospital. So to that extent we'll be adding more beds and which I think will be operational in the next twelve to eighteen months. So these are largely the expansion plans that we have. And of course, there are other avenues that we will be looking at as and when time comes. At this point, it may not be the best thing to disclose. Understood. Thank you so much. Any commissioning time lines for Mumbai expansion?

28:57 The Mumbai expansion, basically, we are working along with the trustees. It has been delayed quite significantly. There are certain approvals which are pending and we are working closely with the trustees. So as and when there is an update, we will share with you. There's no update as such on that side. Understood. And one last question on Foso, like what kind of revenue generation is that from that end of the business? We are only concentrated to profitable, and we have limited our operations to the profitable. It is not only the financial KPI which we look at, it's the quality KPI also.

29:43 So we are selective here. If you ask us, we have an aggressive plan there. So no, we are only concentrating building our in house capacity and to a selective Khorsos only. Okay. Thank you so much. Thank you, sir. The next question is from Supraja from Kaji Limited. Please go ahead. Hi. My question is regarding the MedTech business. We acquired this in 2021, and it is glad to hear that you have been stabilized the, you know, target pretty well. Now I would like to understand what is the road map for this company for the next two to three years, from a top line perspective, from an EBITDA perspective and from a debt perspective also, if you can throw some light, Mr. Shalby?

30:37 Yes. What happens is like with the new supply chain, the costs will significantly come down and then we will be aggressively pushing on the sales because the profitability will be on the higher side. We expect that the sales will go up quite significantly over the next couple of months and you will see that growth gradually. So I'm unable to give you numbers because we are not kind of I mean we have the projections with us, but we are not able to share it. But yes, over there also in the debt in the implant business, we are going to see a significant debt reduction. The reason being that we will be utilizing our existing inventory. So if you look at the last six months also, the sales have gone up, but our absolute inventory has come down. So from almost 1,200 to 15 hundred day kind of inventory, we have come down by half. So I think that's really the direction in which we are moving.

31:45 We're trying to reduce the inventory days significantly, improve the profitability and improve the cash flow and the cash flow will improve if we don't significantly add new product pipelines, etcetera. So at this point of time, we are not having a plan to add a lot of new products. Of course, the ones that we are already working on will be launched, but otherwise, we are not going to be adding a lot of products. So with all of this, we are on the right trajectory to increase sales, increase profitability, reduce inventory and improve cash flow. Sure. And would you be able to give us a figure of debt that you see in the next one, one point five years for the implant business, how much it can come down line?

32:35 So what we believe is that the debt at the consolidated level will come down significantly because this time you would have seen, this is the first time in the last many quarters where we have seen a reduction in the overall net debt. So that debt will continue to reduce going forward and with a much faster pace with the new supply chain coming in. But I will let I will request our CFO to throw more light on that. Yes. Thanks, Shalby. And on to the debt, as Shalby mentioned and I also mentioned before, the debt had decreased in this quarter, and it is despite even when the dollar became more stronger, had the dollar been at the same level, the debt reduction could have been more higher. And on to the further quarters, while we say that the debt would reduce, this is also supported with the reason that the PK has become EBITDA positive. The cash requirements there have significantly reduced.

33:30 The MedTech asset total level in the fifth consecutive year of EBITDA positive. The EBITDA has grown about double than the previous quarter. Their cash requirements have relatively gone down. Our cash flow requirement at a group level has significantly been so lower that if I mention a number, it has been just 10 crore of the CapEx, which we had done as a replacement this year as against the INR 160 crore of the CapEx, we did last year. So with these figures, our cash flow requirement and cash accruals would be far more higher to reduce this debt, and we are confident, hard to predict a number, but you would see a constant decline in the coming quarters to this. Okay. Understood. Thanks a lot, sir. Thank you. Thank you. The next question is from Mr. Kashyush Thakur from Lara Securities. Over to you.

34:24 Thank you for the follow-up. Sir, one of the bookkeeping questions, what kind of CapEx can we expect for FY 'twenty seven? Secondly, what kind of tax rate we should expect for FY 'twenty seven? So the CapEx in the H1 had been about INR 10 crores. And in the H2 also, are not seeing any different number. The requirement would be just the replacement CapEx as to keep the health of the business and medical equipment, which are necessary to the hospital. We are not seeing any significant CapEx otherwise. The medtech is already resourceful to the CapEx in this year. And coming to the tax rate, it has significantly now being on a better side. Our tax rate is at a stand alone level is 25% as compared to 35% in the last year.

35:09 If you would notice, our ATR has significantly come down now, which was about 65% in the last year, now at about 49%. This is also one the reason which will give us support to the cash flow from here. So any call out towards the number what we are giving for FY 'twenty seven? For in respect to? ETR. It would be about 45% of the thing, 50% it has already come down and there could be further little reduction with an EBITDA and profitability improving on to the PK Gurgaon unit and the MedTech side. Understood. And any like so that you would like to share any guidance on margins or top line for FY 2027?

36:03 So we are looking at double digit growth into our top line, which is there by the H1. You have seen it nearly already there. Hospital has turned around very strongly in the H1 as compared to the last year. The MedTech CAGR had been at also about 40%, 50% into the recent year. We are trying to maintain the same momentum. So double digit growth is very much supported with the confidence we have in the H2. And on to the EBITDA side also, since all the units, all the entities are now on the EBITDA positive, so you would definitely see a relatively a better EBITDA margin than the previous year. And it would strongly also bounce further in the coming quarter of the next year. Understood. Thank you. That's all from my end. Thank you. Ladies and gentlemen, as there are no further questions, I now hand the conference over to management for closing comments. Thank you, everybody, for joining the call. We will connect again into the next quarter. Apart from that, if you have any questions, you can reach out to our investor email ID. Thank you. Happy Diwali.

37:12 Thank you. On behalf of IRA Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.