Shalby is a cash surplus company with zero debt on its balance sheet: Shanay Vikram Shah, Director

Shanay Vikram Shah, Director, Shalby Hospital, talks about expansion plans of the company in India and international market, margin expansion, inorganic growth opportunities and Ayushman Bharat scheme and its impact among others during a conversation with Swati Khandelwal, Zee Business. Edited Excerpts:  

Q: Shalby Hospital has 11 hospitals at present. Let us know about your expansion plans for the next 3-5years and the areas where you will be expanding? 
A: Currently, we have 11 hospitals with 2,000 beds of which 4 are located in Ahmedabad, and 1 each in Surat, Vapi, Indore, Jabalpur, Jaipur and Mohali. Besides, 500 beds are under construction at present. One hospital is coming up in Nashik and Mumbai each. A 175-bed hospital is being developed at Santacruz, Mumbai. These are the expansion plans and they are going on. Apart from this, we are looking at opportunities in Kolkata and Delhi but don't have anything that can be announced at present. 

Q: Margins of Shalby is improving sequentially. Talk about the major contributors that are leading to margin expansions? 
A: 1000 of the 2000 beds we have, at present, came in existence in the last two years. And, the margins that you are seeing is the lowest margin in the last two years because the operating leverage will become visible now. You are well aware of the fact that the hospital sector is a long gestation sector which takes almost 2-3 years in reaching the break-even point. But in our case, the 4 hospitals have reached the break-even level in just 1 year or so and are contributing positively to the company's earnings. Our EBITDA margin is the highest, even though, we don't have 70% capacity, in the industry and stands at around 18-205. This margin will increase even more after the operating leverage kicks in. 

Q: By when the operating leverage will kick-in and the margins will go up to?
A: Hospitals take around 4-6 years in reaching the maturity stage. So, in the next 2-3 years, we will get a chance to see where our margin will increase at a continuous pace and will have positive contributions to our earnings. Thus, we expect the margins will pick up in the next 2-3 years. 

Q: Do you have any expansion plans at the international level?
A: Yes, we have such plans. ORTHOTRENDS conference was held last week in Ahmadabad, which was participated by 800 delegates of orthopaedic surgeons from across the globe (more than 35 countries). They were here to learn the process of conducting orthopaedic surgeries. When it comes to orthopaedics then everyone has their eye on us. We are in talks with several hospitals in the Middle East and Africa and also working with many and we are a household name and people know who we are. 

Q: You are showing organic growth in this business but do you have your eyes on inorganic ways of expansion or merger and acquisition, if yes, then talk about the geographies where you will be interested?
A: It is a consolidation period for the healthcare industry and several hospitals are willing to come out from the field while others are expanding. Shalby is a cash surplus company with zero debt on its balance sheet and has the opportunity to work on these inorganic opportunities as several hospitals are willing to get out from this business at least in India. 

Q: Do you have something on your radar that can come up as an announcement in this financial year or the next and have reached the due diligence level?
A: Currently, we have a special focus on Delhi and Kolkata and as far as opportunities are concerned then we are getting 2-3 opportunities in every 2 days. So, there is no shortage of opportunities but we are very selective and know where we want to be and where we have opportunities. We have a model in which we prefer going to places where Shalby is well known as it will not take a lot of time to ramp up the hospital in the area. And, this strategy has helped us a lot in the last 25 years and focusing on the same, we consider Delhi and Kolkata as two reasons where we can focus, at present. Interestingly, talks are on with hospitals and they will be between 100-200 beds hospitals, however, I would not like to talk about valuations because the deals are at an early stage. 

Q: Your shares were priced Rs248 at the time of IPO launch in 2017, but today it has declined a lot. What can be the reason for this decline of valuation and how you will address it? 
A: First of all, we understand healthcare business and are very new in the share bazaar, as it hasn't been even 2 years over here, and that's why we don't know a lot about it. But, know our business well and that's why focus on that and if your question is that what new has happened in the company in the last 2 years then I will say that things have been good and our margins have expanded and revenue has grown by almost 15-20%, even earnings have grown. As far as price is concerned then I would like to say that we as promoters are 80% owner of the company, thus, we are affected the most but having said, we feel for investors. I think that investors should stick with us and it is a good opportunity to buy many stocks at this point of time as a lot of price erosion has taken place in almost every sector including the health sector. So, there are select opportunities in the market for investors to look into.

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Q: Did the government's Ayushman Bharat has had any impact on your business in terms of an increase in the number of patients and what is your expectation from the scheme?
A: I would like to inform you that Shalby is the only corporate hospital, whose cost structure is very efficient and that's why we can opt for Ayushman Bharat at our hospitals and we have taken it. I also feel that this is a very big opportunity for the entire healthcare sector, both corporate as well as the unorganised segment. We have seen the numbers and are seeing that quarter on quarter this number is going at a fast pace.