MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The following discussion and analysis should be read in conjunction with the Company's financial statements included herein and the notes thereto. The financial statements have been brpared in compliance with the requirements of the Companies Act, 2013 and Generally Accepted Accounting Principles (GAAP) in India. The Company's management accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably brsent the Company's state of affairs and profits for the year. Investors are cautioned that this discussion contains forward-looking statements that involve risks and uncertainties. When used in this discussion, words like 'will', 'shall', 'anticipate', 'believe', 'estimate', 'intend' and 'expect' and other similar exbrssions as they relate to the Company or its business are intended to identify such forward-looking statements. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Actual results, performances or achievements could differ materially from those exbrssed or implied in such statements. Factors that could cause or contribute to such differences include those described under the heading "Risk factors" in the Company's prospectus filed with the Securities and Exchange Board of India (SEBI) as well as factors discussed elsewhere in this report. Readers are cautioned not to place undue reliance on the forward-looking statements as they speak only as of their dates.

INDIAN INDUSTRY LANDSCAPE

India's healthcare sector, estimated at Rs. 6.7 trillion (tn), is growing at the average rate of 20.0% year-on-year. The sector is pegged to reach Rs. 18.8 tn by 20201 and this growth is likely to be fuelled by the changing demographics, rising incomes, accelerated health awareness, changing disease profile (towards lifestyle diseases), increasing penetration of health insurance, medical tourism, and the increasing bed count of hospitals across multiple clusters of the country.

It is also estimated that the major portion of healthcare sector's growth (approximately 60.0%) will come through healthcare delivery space which broadly includes hospitals, nursing homes, and diagnostic centres. According to a CRISIL report2, the size of the Indian healthcare delivery industry in 2015 is estimated at Rs. 3.8 tn which translates into over 3,400 million (mn) procedures and treatments. The healthcare delivery sector is expected to grow at a CAGR of 12.0% and reach Rs. 6.8 tn by the year 2020

INDIAN HEALTHCAR DELIVERY MARKET

India, one of the fastest growing economy is gradually moving forward in the healthcare domain. Given, India falls below its global peers on healthcare benchmarks, there is a significant scope for enhancing healthcare services.

First, the availability of specialised healthcare services is largely demographically driven. Large cities in general have multispecialty hospitals, while small towns tend to have hospitals with basic capabilities and any significant treatment are referred to larger city hospitals. There is also an under penetration of hospital network in the rural areas which accounts for 67.0% of the total Indian Population3. The urban regions are also penetrated better in terms of distribution of medical personnel per capita. The proportion in urban to rural areas is approximately 1.3 to 0.4 doctors, 4.2 to 1.2 total health workers, and 1.6 to 0.4 nurses and midwives, respectively. (Source: WHO Strategy Report)

Second, Indian people expenditure in healthcare is one of the lowest in the world (Approximately 4.0% as compared to 17.1% in the USA, 9.7% in Brazil, 9.1% in United Kingdom and 5.6% in China, Source: WHO Global Healthcare Expenditure Database)

Third, from a capacity view point, India's overall bed density is 7 per 10,000 persons (compared to a global median of 27), with a bed density of 2 in rural areas and 25 in urban areas (Source: Healthcare delivery sector in India report by CRISIL Limited, June 2015). The Country will need to add 3.6 mn beds over the 2 next decades to address the existing as well as the growth in population (Source: 2015 PwC report)

Except with respect to select health programmes, the private sector principally dominates the provision of personal medical care in India with 80.0% of all out­patient care and 60.0% of all in-patient care being provided by the private sector (Source: WHO Strategy Report). As of 2013, government spending on healthcare in proportion to total spending on healthcare was only 32.2% (Source: WHO's Global Healthcare Expenditure Database). To sum up, a combination of demographic and economic factors are expected to drive growth in the healthcare delivery market in India. In addition, improvement in health awareness, changes in the disease profile (towards lifestyle-related ailments), rising penetration of health insurance and increasing opportunities from medical tourism will propel demand for healthcare facilities in India. Expansion plans by major private players are expected to be skewed towards illnesses related to the in-patient department (IPD) and hence, the share of IPD by value is expected to increase from 81.0% in 2015 to 83.0% in 2020. During the same period, the average cost for IPD treatments is expected to increase at nearly 8.0% CAGR. By 2020, the IPD market is estimated to reach X 5.7 tn while the Outpatient Department (OPD) market size is estimated to reach X 1.1 tn. (including clinics and information centres), across India and 1 hospital at Cayman Islands with 5,347 operational beds and the potential to reach a capacity of 6,651 beds. The group operates a Pan-India network of hospitals in India with a particularly strong brsence in the southern state of Karnataka and eastern India, as well as an emerging brsence in western and central India. The group was founded by Dr. Devi Prasad Shetty, who has over 30 years of medical experience, including as a cardiac surgeon.  

COMPANY REVIEW

Founded in 2000, NH has embarked upon a journey to build an affordable, accessible and convenient healthcare ecosystem for the nation. Our brand “Narayana Health” is strongly associated with our mission to deliver high quality and affordable healthcare services to the broader population by leveraging our economies of scale, skilled doctors, and an efficient business model. Today, NH is one of the leading healthcare service providers in India. As on May 1, 2016, the group operates a network of 23hospitals, 7 heart centres and 23 primary care facilities

(including clinics and information centres), across India and 1 hospital at Cayman Islands with 5,347 operational beds and the potential to reach a capacity of 6,651 beds. The group operates a Pan-India network of hospitals in India with a particularly strong brsence in the southern state of Karnataka and eastern India, as well as an emerging brsence in western and central India. The group was founded by Dr. Devi Prasad Shetty, who has over 30 years of medical experience, including as a cardiac surgeon.

We strongly believe that India needs to improve on healthcare and as a responsible corporate within the domain, we are keen to bridge this gap. Our effort is to widen our network and continue to being committed to giving people access to affordable healthcare across segments. In this pursuit, we keep emphasising on innovation and consistent planning. We believe that with a reduction of our operational costs, we shall be attracting a large number of patients, and in due course, increase our revenues and operating incomes. Our philosophy is based on the notion that if we make healthcare services affordable, we improve  the chances of patient having a better mental and emotional disposition after treatment. This makes us strive concertedly to keep the cost of our services as low as can be.

Fiscal 2016 has been very eventful for the Company. First, our Company got listed on the bourses after receiving tremendous response from investors across all categories. We are very humbled by the fact that investors have apbrciated our business model and they believe in the long-term vision which the Company has set in place for its stakeholders. While we have been working on our strategy for the last many years, we believe, our fiscal performance this year would also start showing signs of inherent strengths our business has. From a financial performance perspective, we had a fiscal dedicated to consolidation of our business. We not only improved on our revenues, but also enhanced our operational performance on multiple counts. While our flagship hospitals continue to do well in their respective domains, our newer facilities also started demonstrating promising performance on the operational as well as financial front. Our consolidated income from operations during the fiscal 2016 grew from Rs. 13,639 mn to Rs.  16,075 mn thereby reflecting an increase of 17.9% which is higher than the average growth of Indian healthcare delivery sector. We believe that we have strategically progressed in the direction that we have set for the group. On the profitability front, our consolidated EBITDA margins reflected a robust growth of 43.9% over the brvious year. This year we recorded a consolidated EBITDA of Rs.  1,868 mn as against Rs.  1,298 mn in the brvious fiscal. This growth largely factors in performance both at the matured hospitals and also at the new hospitals which are in various stages of stabilisation. We closed this financial year with a consolidated Profit after Tax of Rs.  191 mn against a loss of Rs.  168 mn in the brvious fiscal. We continued to diversify our revenue base across hospitals and medical specialties. The contribution to our total operating revenue from our top 3 hospitals (as of March 31, 2016) was 53.6% in FY16 compared to 72.2% in FY13. The contribution to our in-patient billed revenue from specialties outside of cardiac and renal sciences was 42.0% in FY16 compared to 32.3% in FY13. Our performance establishes our belief that we are on the right course towards achieving growth with affordability, accessibility and quality healthcare.

From an operational standpoint, we received National Accreditation Board for Hospitals & Healthcare Providers (NABH) accreditation for 5 new units this fiscal viz.- HSR, Guwahati, Ahmedabad, Jamshedpur and Mysore. With 8 accreditations for our different hospitals from NABH, we bolster our confidence in delivering high quality healthcare services to our patients. Some of the other operational achievements during the fiscal were:

Performed 12 heart transplants, 387 renal transplants with 4 liver transplants across the network.

Introduced new service offerings across different units viz. oncology at Mysore, cardiac surgery at Whitefield, 24*7 on-call support for cardiology at Barasat, rheumatology & medical oncology at Ahmedabad, head & neck surgery and interventional radiology at Shimoga.

Partnered with various state and central government entities as a brferred healthcare destination and skill development viz. Jharkhand, Karnataka, Rajasthan, ESI, ABY etc.

Received multiple awards from the industry and media for distinguished performance, some of which are highlighted below:

o Rabindranath Tagore International Institute of Cardiac Sciences (RTIICS), our flagship facility at Kolkata, along with Narayana Superspecialty Hospital (NSH) at Howrah, were  awarded as No. 1 hospital for cardiac sciences & cancer care respectively in eastern India as per a survey conducted by the Times Group.

o Narayana Multispecialty Hospital (NMH), Jaipur was rated 4th best hospital in Jaipur in 'The Week's' annual best hospital'. The hospital was also awarded in the category of 'Quality beyond Accreditation' at the Global Conclave of Association of Healthcare Providers of India (AHPI) held at Mumbai.

o NSH, Guwahati received 'North East Leadership award for Healthcare'.

The building blocks for the next level of growth have been laid and going forward, we believe that we are well positioned to capture opportunities that the healthcare services market has on offer.

RESOURCES REVIEW Hospital Network

We have a broader network of healthcare facilities across India with 23 hospitals, 7 heart centres and 23 primary care facilities (as of May 1, 2016) across India. We have a strong brand recognition in 2 geographical clusters in the southern state of Karnataka and eastern India, as well as an emerging brsence in western and central India. We believe that our brand image and operational experience in our core markets provide us the platform to further expand our brsence and operations in select locations across the country.

We operate our business through a combination of 5 models in order to expand our market brsence while maximising the efficiency of our capital deployment.

As on May 1, 20166, out of the 23 hospitals we operate in India, we own and operate 4 hospitals (freehold land and building), operate 7 hospitals on a lease basis, operate 6 hospitals on a revenue share basis, 2 hospitals in Guwahati and Jammu on a public-private partnership model, and operate 4 hospitals on a management fee basis. We have also considered a judicious mix of organic and inorganic initiatives so as to ensure efficient deployment of resources. In the eastern region, we acquired a 159 capacity bed hospital in Barasat and a 65 capacity bed hospital in Berhampore in March 2014, and 2 multispecialty hospitals with a combined capacity of 420 beds in Howrah in November 2014. With these inorganic initiatives, we have established us as one of the leading healthcare services providers in eastern India.

CLUSTER WISE NETWORK Karnataka Cluster

Our Karnataka cluster is centred around NH Health City, located in Bommasandra, Bengaluru, which comprises Narayana Institute of Cardiac Sciences (NICS), a superspecialty hospital for cardiology and cardiac surgery, and Mazumdar Shaw Medical Center (MSMC), a multispecialty hospital for cancer care, neurology and neurosurgery, nephrology and urology, and houses what we believe, is one of India's largest bone marrow transplant units. We also have hospitals in HSR Layout and Whitefield in Bengaluru along with 1 managed hospital at JSW Bellary, 6 heart centres across different parts of state and 2 clinics.

One of our flagship hospitals - NICS (started in 2000) is a leading cardiac hospital in the world equipped with dedicated cardiac operation theatres and digital cath labs and is a hybrid capable of performing both interventional cardiac procedures as well as complex heart surgeries. It has dedicated critical care beds for post-operative care and performs Cath Lab procedures routinely. It specializes in complex cardiac surgeries and other cardiac procedures such as pulmonary endarterectomy for chronic pulmonary embolism, aneurysm repairs, electrophysiology, endovascular interventions for aneurysms and radio frequency ablations, valve repairs and ROSS procedures, left ventricular remodelling / Dor's procedure, device closure for ASD & VSD and tetralogy of fallot amongst other complex procedures. NICS has 706 operational beds with a capacity to go up to 800 beds, the facility accounts for 18.4% of the overall hospital revenues.

MSMC (started in 2009) being our other flagship hospital - is one of India's largest and advanced cancer therapeutic facilities containing one of India's largest bone marrow transplant unit, internationally acclaimed faculty and affiliations with global cancer care centres of excellence. The hospital includes the Institute of neurosciences, Institute for kidney and renal care, Institute for gastro intestinal & liver diseases, pediatrics and neonatal care as well as obstetrics & gynaecology catering to all the healthcare needs of women and children in addition to a host of other medical, surgical and diagnostic facilities and services across a range of clinical specialities. MSMC is also a recognised centre for organ transplants offering bone marrow, kidney and liver transplants. As a part of our corporate social

Going forward, we intend to further enhance our economies of scale, cost efficiencies, and ultimately expand our revenue and profitability in our core regions of Karnataka by continuing to strengthen our brsence and increase our share of available hospital beds. responsibility, mobile breast cancer screening and head and neck cancer screening programmmes are offered across the state of Karnataka. MSMC has 628 operational beds and contributes close to 17.8% in the total hospital business.

Besides the 2 flagship hospitals, our hospitals in Bangalore also include Narayana Multispecialty Hospital, Whitefield, which is our first brmium healthcare facility with cardiac sciences, renal sciences, neurosciences and orthopedics accounting for bulk of in-patient billed revenue during the fiscal. The facility's primary catchment area is the affluent neighborhood in proximity to the International Tech Park, Bengaluru. In fiscal 2016, we started cardiac surgeries in our Whitefield facility.

We also have a multispecialty tertiary care hospital in HSR Layout, Bengaluru which specialises in short stay surgeries, adult cardiology, gastroenterology, nephrology, neurology and neurosurgery. In line with our vision of affordable care to broader population, we also have established India's first low cost multispecialty hospital at Mysore. In sync with the local demand, the hospital also initiated oncology services. The hospital was recently conferred with the 'Best Hospital Design' in the 5th Medgate Annual Awards 2015. Its building design helps maximize the utilization of natural daylight and natural cross ventilation in order to minimise electricity consumption.

In 2013, we also setup a tertiary care hospital in central Karnataka at Shimoga which has a regional monopoly in tertiary care services. The 327 capacity bedded facility is specialised in cardiology, head & neck surgery, interventional radiology and critical services. The Shimoga hospital is empanelled with many government bodies and cater to a significant number of patients under micro-insurance schemes across central and north Karnataka.

Going forward, we intend to further enhance our economies of scale, cost efficiencies, and ultimately expand our revenue and profitability in our core regions of Karnataka by continuing to boost our brsence and increase our share of available hospital beds.

Eastern Cluster

Our brsence in eastern India is led by RTIICS, a multispecialty hospital located in Kolkata. Our network of 10 hospitals in eastern region includes hospitals in the greater Kolkata area encompassing Howrah, Barasat and the eastern metropolitan bypass, a multispecialty hospital in Jamshedpur (Jharkhand), a superspecialty hospital in Guwahati (Assam), and a hospital each in Durgapur and Berhampore (West Bengal), and a heart centre in Durgapur (West Bengal), totalling to 1,952 operational beds.

RTIICS, Kolkata (started in 2000), our third flagship hospital is a centre of excellence in cardiology, cardiac surgery, neurology, neurosurgery, kidney transplant, medical and surgical gastroenterology. The Hospital caters to the population of West Bengal and neighbouring districts in eastern India as well as the north eastern states apart from countries such as Bangladesh, Nepal, Bhutan, Africa and Myanmar. The Hospital performs one of the highest number of complex paediatric and adult cardiac surgeries in eastern India. It is pioneered in IVUs guided Angioplasty and offers the largest renal transplant programmes in the country. RTIICS is also the only centre in eastern India for brain pacemakers for advanced Parkinson's disease epilepsy surgery. The Hospital was also awarded as No. 1 hospital for Cardiac Sciences in eastern India as per a survey conducted by the Times of India in 2016.

Further east, our 270 bedded hospital at Guwahati is a super specialty tertiary care hospital designed to cater to the combrhensive healthcare needs of the people of Assam and the far-east regions of India. The hospital is largely focused on emergency and trauma along with healthcare services in cardiology and cardiac surgery, neurology and neurosurgery, nephrology and urology, orthopedics and joint replacement, gastroenterology and GI surgery, general and laparoscopic surgery, critical care, diabetology and endocrinology, internal medicine, pediatrics. We also acquired a 159 capacity bed hospital in Barasat and a 65 capacity bed hospital in Berhampore in March 2014, and 2 multispecialty hospitals with a combined capacity of 420 beds in Howrah in November 2014.

We are recognised as one of the leading healthcare services providers in eastern India and we expect to cement our position further. Going by the industry estimates, Kolkata still falls behind the other metros in terms of hospitals per person and we see this as an opportunity to further expand our network in the region. We believe we can leverage our strong brand recognition and operational experience in Kolkata to tap into this significant market opportunity.

To grow our revenues in eastern India, we expect to drive patient flow from north-east India, including from the state of Assam, into our hospital at Guwahati, Assam to serve as a gateway to north-east India. We would further develop our hospital in Barasat, West Bengal from a secondary care trauma centre into a multispecialty tertiary care unit, utilising the available freehold land and transform our Narayana Superspecialty Hospital in Howrah, West Bengal, into one of the leading full-fledged BMTU oncology hospitals in eastern India, with a particular focus on the Kolkata and Howrah districts. Besides the expansion in the existing facilities, we also expect to commission a 220 bed tertiary care facility in Bhubaneswar, Odisha7.

Western, Central Cluster and Others

We have an emerging brsence in western and central India. The cluster is largely driven by our operations at Jaipur (Rajasthan), Raipur (Chhattisgarh), Palanpur (Gujarat), Ahmadabad (Gujarat) and Mahuva (Gujarat).

Our tertiary care facility at Ahmedabad is a pioneer in providing an affordable high quality healthcare in Gujarat. It offers paediatric & adult cardiac, neurology,  or thopaedics, nephrology and urology, obstetrics and gynaecology, general medicine, ENT, paediatrics & neonatology & pulmonology services. The hospital acts as an established location for patients from Gujarat and many other international locations. Recently, we have also expanded our services in oncology (medical & head & neck) which have received an encouraging response.

Our facility at Jaipur offers one of the most combrhensive renal transplant programme, orthopaedics services in the region including bone & joint surgeries, knee & hip replacements, spine surgery, arthroscopy and sports medicines. It also has the expertise and infrastructure to treat neurological conditions like stroke, AVMs, tumours, epilepsy and so on. The Jaipur hospital is also a leading centre for minimal access surgeries and bariatric surgery to treat metabolic disorders and weight loss. Similarly, our unit at Raipur houses the largest dialysis centre in central India. It also offers the largest cardiology and cardiac surgery programme in Chhattisgarh with other specialties including adult and pediatric cardiology and cardiac surgery, nephrology & urology, neurology & neurosurgery, plastic surgery, cranio maxillo facial surgery, dermatology & cosmetology, haemato-oncology and gastroenterology amongst others.

We aspire to improve our penetration in western and central India in order to further realise the benefits of scale. Going forward, we expect new cities within these regions to drive our growth. We intend to continue focusing on the tertiary care segment, which we believe is underserved in these regions where non-institutional hospitals are focused primarily on the secondary care market. We would continue to leverage our brand name and operational experience to identify attractive opportunities for continued expansion within India. Our evaluation criteria include location, demographics, revenue potential, competitive landscape, cost of expanding or commissioning new facilities, and reputation, amongst other factors.

We have identified Lucknow in central India and Mumbai in western India as key markets for our near-term expansion plans. In the next 12 months, we are likely to commission a 326 capacity bed multispecialty tertiary care facility in Lucknow as we believe that the city brsents a significant opportunity for the entry of an institutional hospital chain such as ours, and is complemented by the available pool of medical talent from its medical colleges. We are also moving forward towards commissioning of a 297 capacity bed dedicated multispecialty pediatric hospital in south Mumbai in partnership with Society for Rehabilitation of Crippled Children (SRCC) within the next 6-12 months.

While we would continue to explore new geographies in the other parts of the country, we have recently established a hospital in northern region. Our hospital Shri Mata Vaishno Devi Narayana Superspecialty Hospital at Kakryal in Jammu (J&K) is established in partnership with Shri Mata Vaishno Devi Shrine Board. The hospital is approximately 15 kilometres from Katra, the base camp for tourists of Holy Shrine of Shri Mata Vaishno Devi. It is a state-of-the-art tertiary care facility which is poised to cater to patients across 20 different specialities with special focus on cardiac sciences and oncology. This 230 bedded hospital will provide affordable quality care that Narayana stands for to the patients from Jammu and Kashmir as well as the bordering areas of Punjab and Himachal Pradesh. Going forward, the hospital is expected to have a full-fledged bone marrow transplant facility.

Operational Beds Built Up

Between April 2012 and May 2016, we have added 2,468 beds and that is not the end. Also, our calibrated model for establishing and expanding our hospitals  has allowed us to achieve a more efficient use of capital. Our "Asset Right" model for expansion of our hospital network is based on engaging with reliable partners that invest in land and building, while we invest in and own the medical equipment and operate and manage the hospital, typically on a revenue share basis. We continuously invest in medical equipment and technology and modernise our hospitals so as to offer high quality healthcare services to our patients & expand our range of healthcare services. Our asset right model has enabled a lower capital cost per bed of Rs. 2.6 mn as of March 31, 2016.

Specialty Profile

We believe our strong reputation and clinical capabilities in cardiac and renal sciences, as well as our continuing expansion across other high value clinical specialties, position us to benefit from the increasing demand in India for quality healthcare services, particularly tertiary healthcare services. Our chain of facilities provides advanced levels of care in over 30 specialties. We have a strong legacy in cardiac and renal sciences and we believe a combination of factors, including changing demographics, increasing affluence of the Indian population, greater health awareness, and an increase in lifestyle-related diseases will lead to an increase in demand for quality tertiary and other healthcare services. We have also expanded our core specialty areas to include 4 additional areas of focus: cancer care, neurology and neurosurgery, orthopedics, and gastroenterology.

Brand Recognition

Narayana Health brand is widely recognised in India and internationally for the provision of high quality, compassionate and affordable healthcare services. We have received numerous national and international awards and recognitions which we believe are a testimony to our strong brand value built over many years in the healthcare services industry. We believe our strong brand equity and goodwill among patients and healthcare professionals has also positioned us as a partner-of-choice for governmental bodies, not-for-profit trusts and charities, and private organisations seeking partners to operate and manage their healthcare facilities.

Employees and Doctors

We believe our doctors and consultants are some of the most experienced within their respective specialties in India which allows our hospitals to handle complex and high intensity clinical cases. Our doctors and consultants have contributed significantly to build our "Narayana Health" brand. Going forward, we endeavour to access qualified and trained medical resources through our educational initiatives. We also believe our reputation for clinical excellence, competitive compensation packages and ethical practices enable us to attract not only patients but also quality doctors and medical support staff within India as well as Indian nationals returning home after having studied or worked overseas.

Technology

At NH, we believe that the next big thing in healthcare will be Information Technology that will change the way healthcare is delivered and consumed. We envisage that the entire healthcare will be delivered on the IT platform. We have made significant investments on the use of technology not only in the area of providing the best treatments but also keeping our senior doctors and administrators abreast on a daily basis about the hospitals. The Company was amongst first few groups in India to put its data on the cloud network.

We have adopted HINAI, a cloud based HIS application which integrates our administrative and clinical operations across India. This software combination enables us to maintain consolidated patient records and provide real-time access to data

OPERATING PERFORMANCE

Consolidated Performance

From a group perspective, we reported an improved operational performance over the brvious fiscal. Following is the snapshot of Company's performance in the fiscal 2016:

The eastern region, however, has the highest ARPOB for NH amongst the brsent clusters. There has been significant improvement in the occupancy levels for the western and central cluster.

The increase in the number of beds remained flat as the Company closed some of its units considering business and economic factors. The occupancy rate improved 140 bps to 54.2% in FY 16 from 52.8% in FY 15. There has been a reduction in the Average Length of Stay (ALOS) along with close to 10.2% increase in the average revenue per operational bed (ARPOB). This improvement is in line with our focus on high growth tertiary care areas that would improve our case mix.

The Karnataka cluster contributes close to 46.6% of the hospital revenues followed by eastern cluster which is 37.0% of the hospital business. The eastern region, however, has the highest ARPOB for NH amongst the brsent clusters. There has been significant improvement in the occupancy levels for the western and central cluster.

Maturity wise Performance

The group's 8 units with age over 5 years include - NICS, MSMC, RTIICS and units at Jaipur, Jamshedpur, RNN and NSC. These units collectively contributed close to 71.5% of hospital revenue and account for 53.8% of the hospitals operational beds. The consolidated Earnings  before Interest Debrciation Tax and Rentals (EBITDAR) before corporate expenses for this group is 23.8% which is in line with the industry standards.

The 3-5 years group includes 4 hospitals that are our units at Raipur, Ahmedabad, Mysore and Shimoga. Together, these 4 hospitals account for 13.0% of the hospital revenue and 15.2% of the hospital operational beds. Given, these hospitals are still in the early stages of maturity, they registered an EBITDAR performance of 4.1%. The remaining 11 hospitals including 4 acquired facilities contributed over 15.5% to the hospital revenues. The synopsis of performance is given below:

SHAREHOLDERS' FUNDS

The movement in the shareholders' funds from Rs. 7,684 mn as on March 31, 2015 to Rs. 8,868 mn as on March 31, 2016 is explained in the below mentioned points:

1. The Company converted Optionally Convertible Debentures (OCDs) along with accrued coupon (net of tax) of CDC India Opportunities Fund (CDC India) into 4,360,804 equity shares of Rs. 10/- each on December 1, 2015, pursuant to amendment agreement dated September 25, 2015 between the Company and CDC India.

2. Increase in the surplus on account of improved operating performance across the network of hospitals. The Profit after Tax after minority interest and share in associate stood at Rs. 191 mn as compared to a loss of Rs. 168 mn in the brvious year.

3. The Company introduced NH Employee Stock Option Plan 2015 (the ESOP scheme) pursuant to which 814,830 options were granted to the employees of the group and accordingly an expense of Rs. 33 mn for FY16 has been accounted as per "Guidance Note on Accounting for Employee Share-based payments".

NON-CURRENT LIABILITIES

Long-term Borrowings

The movement in the long-term borrowings from Rs. 2,066 mn as on March 31, 2015 to Rs. 1,876 mn as on March 31, 2016 is on account of:

I. Conversion of OCDs of CDC India into equity shares equivalent to Rs. 1,000 mn (Principal amount).

II. Repayment of existing equipment loans as well as term loans from bank along with fresh borrowings from banks for funding future growth.

Long-term Provisions

The increase in long-term provisions from Rs. 106 mn as on March 31, 2015 to Rs. 130 mn is due to increase in provision for Employee benefits due to increase in employee headcount and wages over the corresponding period.

CURRENT LIABILITIES

Short-term Borrowings

The short-term borrowings have reduced by Rs. 539 mn from Rs. 985 mn in brvious fiscal to Rs. 446 mn as on March 31, 2016. During the period, the Company repaid working capital loans and overdrafts to multiple banks on account of improved working capital management.

Trade Payables

The trade payables have increased from Rs. 1,358 mn to Rs. 1,647 mn which is commensurate with the volume of business during the year.

Other Current Liabilities

The movement in other current liabilities in on account of:

I. Reduction of Rs. 315 mn in the current maturities of long-term borrowings on account of repayments of existing term loans alongside fresh borrowings with longer tenor of repayments.

II. Increase in the creditors for capital goods by Rs. 146 mn essentially due to purchases of certain medical equipment in March 2016 across the network

NON-CURRENT ASSETS Non-Current Investments

The movement in non-current investments from Rs. 522 mn to Rs. 872 mn largely accounts for the Company's funding to Health City Cayman Island Limited (HCCI) which is setup as JV between our Company and Ascension Health.

CURRENT ASSETS Inventories

The inventory has reduced to Rs. 497 mn from Rs. 512 mn in the FY15. The optimisation is mainly on account of better inventory management and controls across hospitals. A warehouse was setup in the Health City, Bengaluru brmises to cater to all the Karnataka cluster hospitals which led to considerable reduction in stock holding and better fulfilment.

Trade Receivables

The trade receivables (net of provisions for doubtful receivables) went up from Rs. 1,429 mn in FY15 to Rs. 1,527 mn in FY16 which is a function of better receivable management by the Company despite a proportionately higher increase in sales and contribution from institutional business, TPAs and other businesses involving credit

Other Current Assets

The other current assets have increased from Rs. 112 mn to Rs. 287 mn. This is on account of Rs. 141 mn of fixed  assets of our Hyderabad unit classified as held for sale as on March 31, 2016 and that were subsequently slump sold on April 5, 2016.

OPERATING INCOME

The Company's revenue from operations increased from Rs. 13,639 mn in FY15 to Rs. 16,075 mn. This increase of 17.9% is due to:

I. Growth of 62.0% in the hospitals having maturity less than 5 years (including acquisitions) and 9.0% for the hospitals having maturity more than 5 years.

II. Improvement in the average realisation per operational bed (ARPOB) from Rs. 5.8 mn to Rs. 6.4 mn.

III. Rise of total surgeries/procedures performed across the network hospitals by 31.3%.

COST OF MATERIAL CONSUMED

The cost of material consumed (Purchase of medical consumables, drugs and surgical equipment and changes in inventories of medical consumables, drugs and surgical equipment) increased to Rs. 3,871 mn from Rs. 3,407 mn. However, as a percentage to net sales,  the cost of material consumed was 24.1% in FY16 as compared to 25.0% in the brvious year. The Company's efficiency drives at the unit level have resulted in achieving optimal consumption levels. The Company would continue to keep a track of performance so that cost efficiencies are further improved in the system.

MANPOWER EXPENSES (Employee benefits + prof. fees paid to doctors)

The manpower expenses including professional fees paid to doctors have increased by 21.5% from Rs. 5,399 mn to Rs. 6,559 mn in FY16. While there was an increased investment in clinical talent at the group level, the rise in expenses also factors the initiation of oncology practice at our facility in Mysore (July 2015) along with increased salary expense at our 2 acquired facilities under MMRHL which had first full year of operations in FY16. In addition, the Company also issued employee stock options (ESOPs) which had a non-cash provisioning impact of Rs. 33 mn in FY16.

OTHER EXPENSES (Excluding prof. fees to doctors)

The other expenses (excluding professional fees to doctors) of the Company at the consolidated level have increased by 7.4% to Rs. 3,879 mn from Rs. 3,612 mn in the brvious fiscal. Some of the key heads and the movement of expenses across each is explained below:

Hospital Management Fees and Operating Rent

The hospital management fees and operating rent increased over 22.3% from Rs. 392 mn in FY15 (2.9% of total operational revenue) to Rs. 480 mn (3.0% of total operational revenue) in FY16. The movement across these 2 heads is as below:

I. The operating rent increased from Rs. 180 mn in FY15 to Rs. 233 mn in FY16, reflecting an increase of  29.3%.

II. Increase in hospital management fee by 16.3% from Rs. 212 mn in FY15 to Rs. 247 mn in FY16.

This increase factors ramp up of younger hospitals that have been setup by the Company on asset-light model entailing rentals/ revenue share.

Repair and Maintenance

The repair and maintenance expenses have increased from Rs. 552 mn in FY15 to Rs. 690 mn in FY16. This increase is because of:

I. Increase in software maintenance costs due to renewal of agreements with vendors across the network.

II. Additional expenses on account of repair of biomedical equipment.

Power and fuel

While the overall power and fuel cost has increased from Rs. 419 mn in FY15 to Rs. 472 mn in FY16, the power and fuel cost per bed has decreased as the number of occupied beds have increased during the period under review.

EARNINGS BEFORE INTEREST, TAX, DEbrCIATION AND AMORTISATION (EBITDA)

The Company registered a robust 43.9% growth in the consolidated EBITDA. The consolidated EBITDA margins were at 11.6% in FY16 as compared to 9.5% in the brvious financial year. At the standalone level, Narayana Hrudayalaya's EBITDA margins were  12.5%. The Company's subsidiary MMRHL which operates a couple of facilities at Kolkata showed positive EBITDA trends. At the group level, we have started exploiting operating leverages in the business whereby incremental revenue growth is contributing to a higher profitability. The Company's improved EBITDA performance also factors enhancement in the operating margins of our younger hospitals which are ramping up across occupancies with the passage of time.

FINANCE COST

The finance cost on a year-on-year basis has reduced from Rs. 409 mn in FY15 to Rs. 294 mn in FY16. This decrease is largely on account of the reduction in overall borrowings of the Company for the period under review.

EXCEPTIONAL ITEMS

The exceptional items of Rs. 110 mn includes one­time expenses on account of slump sale loss at our Hyderabad unit and additional provision for bonus for FY 15 pursuant to retrospective application of 'The Payment of Bonus (Amendment) Act, 2015'. The Company decided to cease operations at its "Malla Reddy Narayana Multispecialty Hospital" in Hyderabad, Telangana (erstwhile Andhra Pradesh). The decision was part of Company's regular strategic business review to monitor and assess risks and costs associated with all its business units.

PROFIT AFTER TAX

In line with our improved EBITDA performance, contribution from subsidiary financials, we improved our performance by registering a Consolidated Profit after Tax after share in loss of associate and minority interest of Rs. 191 mn as against a loss of Rs. 168 mn in the brvious year.

CORPORATE SOCIAL RESPONSIBILITY

We have adopted a Corporate Social Responsibility policy with the objective of promoting healthcare facilities for the upliftment of people at large and creating a positive impact by addressing issues of accessibility and affordability. We also have set out to promote educational facilities to help and assist in unfolding the talent of children and amateurs and strive for socio-economic development thereby reducing inequality between rich and poor. For a detailed note, please refer to CSR section of this annual report.

RISK & CONCERNS

Risk is a potential event or non-event, the occurrence or non-occurrence of which can adversely affect the objectives of the Company. Impact of risks could either be monetary that is impact on business profits due to increase in costs, decreasing revenue amongst others or non-monetary which is delay in securing approvals, litigation cost, reputational damage and so on. In addition, we could also be susceptible to risks arising out of our business strategy, decision on innovation or product portfolio. If there is any significant unfavourable shift in industry trend or pattern of demand, our returns on investments might get affected. We also have multiple competitors both in India and overseas and we also stride through risk associated with government policies and legal framework. As a conscientious organisation, we have adopted a risk management framework to ensure early identification and management of various critical risks, which accrue to our business model. We continue to work towards managing these risks and work towards business goals.

The risk management framework adopted by the Company ensures continuous focus on identifying, assessment and evaluation, and adequate mitigation of various risks affecting the Company. The Audit & Risk Committee reviews the Company's critical risks, overall risk exposure and timely changes to overall exposure, and status of various risk mitigation plans on a periodic basis.

INTERNAL CONTROLS

The Company is responsible for establishing and ongoing maintenance of adequate and effective internal controls and for the brparation and brsentation of the financial statements, in particular, the assertions on the internal financial controls in accordance with broader criteria established by the Company. A robust, combrhensive internal control system is a brrequisite for an organisation to function ethically and in commensuration with its abilities and objectives. We have established a robust internal control system for the Company and its subsidiaries,

comprising the policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business, including adherence to Company's policies, the safeguarding of its assets, the brvention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely brparation and brsentation of reliable financial information. This internal control system is aimed at providing assurance on the Company's effectiveness and efficiency of operations, compliance with laws and regulations, safeguarding of assets and reliability of financial and management reporting. Company and its subsidiaries is staffed with experienced and qualified people who play an important role in designing, implementing, maintaining and monitoring the internal control environment. Further, an independent firm of Chartered Accountants performs periodic internal audits to provide reasonable assurance over internal control effectiveness and advice on industry wide best practices. The Audit Committee consisting of independent director's review important issues raised by the Internal and Statutory auditors thereby ensuring that the risk is mitigated appropriately with appropriate rectification measures on a periodic basis.

OUTLOOK AND STRATEGY GOING FORWARD

Looking into the future, we foresee many opportunities in the industry for players like us. Our mission is to deliver high quality, affordable healthcare services to the broader population in India. With core values of Innovation and efficiency, compassionate care, accountability on the back, we also envisage to strengthen our business model that not only cares for our patients, but also generate a sustainable financial performance. As we move ahead, we aim to further enhance our economies of scale, cost efficiencies, and ultimately expand our revenue and profitability in our identified locations. Coupled with our "Asset Right" model and effective capital deployment, we would continue our focus on investing in the latest medical technology, attracting skilled physicians and surgeons and developing our expertise in high growth tertiary care areas to serve the increasing demand for sophisticated clinical care and procedures.