CRISIL has downgraded its rating on the long-term loan of Baby Memorial Hospital Ltd (BMHL) to ‘B/Stable’ from ‘B+/Stable’. The downgrade reflects the weakening of BMHL’s financial risk profile because of cost overruns following a delay of nine months in its on-going project of setting up a 300-bed super speciality hospital; the hospital will be housed in an annexe to the current hospital building. The downgrade also reflects CRISIL’s expectation of further stress on BMHL’s financial risk profile, as the company is likely to expend Rs.290 million more, which were not planned earlier, because of a change in the project plan. This additional capex will be largely funded through debt. The downgrade also factors in BMHL’s aggressive capex plans of Rs.4.75 billion for setting up more hospitals over the next two years. CRISIL believes that the financial risk profile of BMHL will be constrained, over the medium term, if there is no substantial equity infusion into the company.

The ratings reflect BMHL’s weak financial risk profile marked by weak debt protection measures, and high gearing, project implementation risks, and exposure to limitations of single-location operations. These weaknesses are partially offset by BMHL’s established position in the Calicut market, and mitigation of employee attrition risks.

Outlook: Stable
CRISIL believes that BMHL will continue to benefit from its established market position. However, the company’s financial risk profile will remain under pressure over the medium, if there is no fresh large equity infusion into the company. The outlook may be revised to ‘Positive’ if there is substantial equity infusion into the company, thereby mitigating the funding risk for its capex and improving its capital structure. Conversely, the outlook may be revised to ‘Negative’ if BMHL faces further time or cost overruns in its ongoing capex programme or undertakes additional, large debt-funded capex programme, leading to deterioration in its capital structure.

About the Company
BMHL, started by Dr. K G Alexander in 1987 as a partnership-firm, is one of the largest hospitals in Calicut. The partnership-firm was converted into public limited company in April 2009. Currently, the hospital has 480 beds. The company is setting up a 300-bed super speciality unit, expected to commence commercial operations by June 2010. BMHL has positioned itself as a multi-speciality, tertiary care referral hospital, offers servicing in anaesthesiology and critical care, cardiology, neurosurgery, oncology, paediatrics, and cosmetology. BMH also offers post-graduate courses for doctors, and degree and diploma courses in nursing.

For 2008-09 (refers to financial year, April 1 to March 31), BMHL reported a profit after tax (PAT) of Rs.49.2 million on net sales of Rs.341.8 million, against a PAT of Rs.20.9 million on net sales of Rs.326.2 million for the previous year.