Aster DM focusing on reducing capex, increasing volumes, free cash flows: MD & CEO

What volume growth will lead to better growth in the coming quarter?

We have been having good margins both in India as well as GCC, but more so in India. The India margins have grown from 10.6 per cent to 12.4 per cent which is significant growth and we will continue doing that in India and even GCC growth will be there. So, the margins will definitely improve. We are looking at ways in which we can increase volume growth.

Looking at the growth and investments happening, we are reducing the capex. There are some committed projects but these are all capex light and we are continuing them. But at the same time, we are looking at new streams of revenue like the labs which we are starting in March and also other areas where the cost or the capex requirement is very low. There is an operationalisation of our existing hospital beds which are there already and that will definitely give us the advantage of having large volumes coming in without any additional investment.

One key investor concern for Aster has been the lack of FCF generation. Will the focus now shift from just expansion to maybe FCF?

Sure, that is the whole idea. We had a growth phase when there were some commitments made but we are gradually reducing our capex over the next three years for the 1,500 beds which we have to build in India. We will be investing Rs 750 crore in three years. On the whole, the focus is to reduce capex and increase the free cash flow and that is what we are looking at. We know that is what the investors want and we are looking at that.

Can you tell us about the fast turnover in the India business? What is the overall picture on the India margins?

We now have a control on our HR cost, we have employed EY to do an efficiency improvement program which helped a lot in reducing the manpower cost, as well as, our purchases are streamlined. We have common formulary which is helping us to reduce the cost. The two main costs are: HR and material cost. These two are under control and we are also changing the mix of our payers by tweaking some of the schemes into more cash paying patients as well as into areas like TPAs and government contracts. Our top line should also increase.

There has been overall strong margin expansion in India and GCC; is this going to continue?

The margin improvement, as well as top line growth in India, is quite strong. Earlier only 15 per cent of our business was from India, now it has gone up to 19 per cent. We hope that in three years, that number is able to reach 25 per cent just from India. We are focussing on metros with large format hospitals, low cost, low capex. We will be able to have strong growth in India along with that GCC will also show growth. If we have to grow at this speed, then definitely we are more focussed on India compared to the GCC.

Aster’s plans to move up the complexity ladder in the UAE. Will that yield result in the long term? How are those plans shaping up?

We have a definite strategic advantage compared to our peer groups or others. They have just hospitals, clinics or pharmacies and they are only into a single segment of the population. We cater to all the three segments of the population that is upper income, middle income and lower-income through our Medcare, Aster and Access, so we have definitely an advantage when it comes to insurance coverage; the insurance companies would like to go with us. We are in a good position to leverage our existing position and move it upwards.

What is your view on the spread and the news flows around coronavirus? Do you think it is turning out to be bigger than what was earlier anticipated?

It is a mild virus that causes only 2 per cent of mortality that too among debilitated as well as old patients. So, there is a scare element and we know that every year a large number of people die due to normal influenza but here the issue is the extent of spread. It is coming into some other geographies also but on the whole, it will die down without causing too much of any mortality or morbidity. It is more of a scare rather than a real illness spreading and killing people. We have to be careful, we have to be in quarantine and we have to do all that is necessary to reduce the spread, but at the same time, it is more of fear rather than the real illness which is causing this all this panic.