Rating Rationale

Strengths
* Strong market position in the domestic X-ray-based medical equipment industry, backed by established marketing and distribution network: Backed by a diverse marketing and sales network (comprising a 100-plus trained salesforce and 150 service engineers at 45 offices across India), and a proven track record of delivering quality products, AMSL has gained sizeable market share, and established the brand, Allengers, at various price points, with a strong recall in the medical equipment industry. Growing penetration has helped AMSL cater to demand even from small clinics and standalone hospitals, and achieve healthy revenue growth in the domestic market. Performance has also been driven by the increasing demand for quality healthcare services and huge investment in the medical sector over the five years ended March 31, 2017.

* Diversified product range, geographic reach and customer base: AMSL manufactures eight major forms of medical equipment, with over 30 variants in segments such as radiology, cardiology, urology, neurology, orthopaedics, and gastroenterology, and caters to both, price-sensitive, and feature-driven customers. Products such as C-Arms and high frequency X-rays were launched in a manner that high-end variants were supplied to large hospitals/institutes, and medium to lower-end versions were offered to local doctors/medical practitioners.

* Healthy financial risk profile: Financial risk profile is marked by a healthy networth and gearing of around Rs 111 crore and 0.06 time as on March 31, 2017, mainly aided by low term debt, comprising vehicle loans (Rs 1.12 crore) and healthy accretion to reserves. Gearing has remained low over the last 2 years ended on March 2017. Debt protection metrics were strong, driven by low outstanding debt and healthy cash accrual. Interest coverage and cash accrual to total debt ratios has remained strong at 9.58 times and 2.78 times, respectively, in fiscal 2017.

These strengths are partially offset by AMSL's following weaknesses:

* Working capital-intensive operations: Gross current assets stood at 169 days as on March 31, 2017, primarily led by large receivables and moderate inventory. Receivables outstanding for over six months mainly stem from the government sector and large orders from private customers. Raw material accounted for around 70% of the inventory (86 days as on March 31, 2017). In spite of limited trade credit support (60 days) from suppliers, overall reliance on short-term debt has declined due to improvement in working capital management and net cash accrual. Working capital management will remain a key rating sensitivity factor going forward.

* Intense competition from established players and volatility in forex rates: Despite being the largest player in the X-ray segment in India, AMSL faces stiff competition from reputed brands such as Siemens Healthcare, GE Healthcare, and Philips Healthcare, unorganised players, and cheap low-end equipment from China. Hence, to counter competition, AMSL has priced its products significantly lower than its competitors, and thus, faces pressure on profitability.

With nearly 30% of equipment being imported, and exports accounting for almost 14% of revenue in fiscal 2017, the company enjoys a partial hedge against forex exposure. It hedges only 10% of the overall exposure, and therefore, remains highly susceptible to fluctuations in forex rates.