Key Rating Drivers & Detailed Description

Strengths:

• Strong operational, managerial and financial support from AHEL: Although ADCL is a subsidiary of AHLL, the ultimate parent, AHEL, will continue to provide operational,managerial and financial support over the medium term. CRISIL Ratings takes note of a letter of comfort from AHEL to the company’s lenders, assuring repayment of debt as and when it is due and payable. Any change in the nature or extent of support from AHEL will be a key rating sensitivity factor. ADCL is part of the dental-care business, and is critical to AHEL’s growth strategy in the retail healthcare segment over the medium term. 

• Diversified geographic presence: ADCL has a strong market position and a diversified geographic presence in the organised dental-care services segment, with 62 centres in two formats: dental clinics and dental express centres. Geographically diversified presence in key locations in major cities will increase footfall and brand visibility over the medium term.

Weaknesses:

• Exposure to intense competition: ADCL faces intense competition from local dentists and dental chains. Furthermore, most of its centres have opened recently and are yet to establish their presence. Nevertheless, ADCL will continue to benefit from the Apollo brand, operating as Apollo White Dental.

• Weak operating and financial risk profile: ADCL turned EBITDA-positive in fiscal 2020, with operating margin at 2.7% {pre IND-AS 116}. Operational efficiency was driven by management’s focus on increasing utilisation of existing centres, resulting in increase in footfalls per day, and better cost efficiency. However, the company continues to make profit after tax (PAT) and cash loss on account of high interest and depreciation cost. Operating revenue as well as profitability will significantly weaken in fiscal 2021, due to the pandemic. Nonetheless, with recovery post lifting of the lockdown, CRISIL Ratings expects ADCL to be EBITDA-positive in fiscal 2021 and to report cash profit in fiscal 2022.

On account of subdued operating efficiency and continued net losses, ADCL’s financial risk profile remains weak. Gearing remained negative while interest coverage ratio was low at 0.2 time (negative in fiscal 2019) in fiscal 2020. Credit metrics will remain subdued in fiscal 2021 because of weak operating profitability. However, the financial risk profile should improve over the medium term. Hence, timing and quantum of any need-based support from the parent will be a key rating sensitivity factor.

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