CRISIL’s rating reflects Galaxy Oncology Associates Pvt Ltd’s (Galaxy) high dependence on timely completion of construction of Crosslay Remedies Ltd (Crosslays Hospital), Vaishali, Ghaziabad, and reliance on the promoters for success of operations. The rating also factors in long standing experience of Galaxy’s promoters in the field of oncology and full funding tie up for purchase of machinery and equipment for the oncology division.

Galaxy has entered into an agreement with Crosslays Hospital to operate and manage its oncology division. Operations at the hospital, which is currently under construction, are expected to begin from Q1 FY 2008-09. Delays in the completion of the hospital or start of operations will, therefore, have a bearing on Galaxy’s credit risk profile. Moreover, Crosslays Hospital, being an upcoming hospital, is yet to demonstrate its ability to provide patients with timely and quality healthcare services. Galaxy’s business prospects will hinge largely on Crosslays Hospital’s ability to establish itself as a quality, multi-specialty healthcare hospital. Also, the promoters have made no contractual commitment, except for the moral, entrepreneurial commitment to stay invested in Galaxy. The promoters’ ability to attract and retain talent in the division is yet to be demonstrated.

These weaknesses are partially offset by long standing experience of the promoters in the field of oncology. The promoters are practicing as senior consultants in reputed cancer hospitals in Delhi and the National Capital Region (NCR). They have vast experience in cancer treatment and are trained specialists from reputed medical institutions. Also, the funding for the project has been completely tied up; the promoters have already brought in 70 per cent of their share of the equity contribution, while the remainder is to be brought in before commencement of operations. The sanction letter from banks for the debt component of the project has also been obtained.

Outlook: Stable
Galaxy’s capital structure may remain leveraged, and its debt protection indicators may remain average over the medium term, owing to the small size of its operations. The outlook may be revised to ‘Positive’ on timely commencement of the Crosslays Hospital project, or if there is significant improvement in Galaxy’s capacity utilisation levels, leading to higher-than-expected cash accruals. Conversely, the outlook may be revised to ‘Negative’ in the event of cost overruns or delays on the project, or if the profitability is below expectations.

About the company
Galaxy Oncology Associates Pvt Ltd (Galaxy) is promoted by a group of seven oncologists (cancer specialists). Galaxy has entered into an agreement with Crosslays Hospital, to operate and manage its oncology division. The project size is estimated at Rs. 145 million out of which Rs. 40 million is equity contributed by the promoters and the balance is debt.