| Apollo Gleneagles Hospital Limited | ||||||
| Ratings continues on 'Watch Positive' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Rating’s ratings on the bank facilities of Apollo Gleneagles Hospital Ltd (AGHL) continues on 'Rating Watch with Positive Implications'.
On November 20, 2020, CRISIL Ratings had placed its ‘CRISIL A+/CRISIL A1+’ ratings on the bank facilities of AGHL on 'Rating Watch with Positive Implications' following the announcement by Apollo Hospital Enterprises Limited (AHEL, ‘CRISIL AA/FAA+/Stable/CRISIL A1+’) on November 11, 2020, regarding the proposed increase in its stake in AGHL to 100% from 50% earlier. AHEL will buy out the 50% stake from joint venture (JV) partner, Gleneagles Development Pte Ltd (GDPL; part of the Parkway Group Healthcare, Singapore) for Rs 410 crore.
While the initial plan was to complete the acquisition by December 15, 2020, AHEL completed the necessary formalities in connection with the equity stake buy out on April 22, 2021. Consequently, AGHL has become a 100% wholly owned subsidiary of the AHEL effective from April 22, 2021.
AGHL already benefits from the support offered by AHEL, which have a material presence in the domestic healthcare sector. CRISIL Ratings believes that post becoming a 100% subsidiary of AHEL, AGHL will have increased operational, management and financial synergies with Apollo Group of hospitals, further benefiting its credit profile.
The ‘rating watch’ will be resolved post better clarity on the synergies and other support which AGHL can benefit from, as a fully owned subsidiary of AHEL.
During the first six months of fiscal 2021, revenues declined by 42% compared to the six months period of previous fiscal due to due to low occupancy levels in the first 3-4 months of the fiscal, owing to the Covid pandemic. As a result, profitability also declined sharply to negative 14% (compared to 7.8% during the comparable period of the fiscal 2020) due to lower absorption of fixed costs. During fiscal 2021, overall revenues and operating profitability are expected to witness a sharp but temporary decline and then recover in fiscal 2022.
The ratings continue to reflect AGHL's established market position in the healthcare sector in eastern India, supported by presence across multiple specialties; and adequate financial risk profile. These strengths are partially offset by geographical concentration in revenue, exposure to intense competition, and limited pricing flexibility. The company is also exposed to regulatory risks in the healthcare industry. |
Analytical Approach The ratings of AGHL factor in support expected AHEL. CRISIL Ratings believes that AGHL will, in case of exigencies, receive distress support from AHEL for timely repayment of debt obligations, considering the strategic importance of AGHL to AHEL. AGHL is the vehicle for AHEL to enter the West Bengal market and is critical for AHEL’s presence in the east. AHEL also provides operational and managerial support to AGHL. Post-acquisition of 100% stake by AHEL, the analytical approach is likely to be changed to a parent-notch up framework. |
Key Rating Drivers & Detailed Description Strengths: Established market position in the healthcare sector in eastern India, supported by presence across multiple specialties: AGHL enjoys a strong brand and is among the top three players in most of its operating segments in the Kolkata market. Association with JV partners, AHEL and GDPL enhances brand strength, apart from providing operational synergies. This has enabled AGHL to consistently improve bed occupancy levels and average revenue per occupied bed, despite increasing bed capacity over the years. Diagnostic centres and clinics also help sustain steady revenue. In fiscal 2021, however, revenues and profitability are expected to be severely impacted due to low occupancy levels in the first 3-4 months of the fiscal, owing to the Covid pandemic, which resulted in low footfalls. Occupancy levels have seen a steady improvement since August 2020, but overall due to a very weak first quarter, overall revenues and operating profitability (expected at very low single digit level) are expected to witness a sharp but temporary decline in fiscal 2021.
Adequate financial risk profile: AGHL's financial risk profile is marked by comfortable gearing and adequate debt protection metrics. Capital spending has been moderate in recent years, and funded largely through accruals, resulting in comfortable gearing levels (0.10 time as on March 31, 2020, against 1.1 times as on March 31, 2013). Debt metrics (interest coverage ratio remains healthy at 12.1 times as on March 31, 2020) expected to be impacted in fiscal 2021, however, the moderation is likely to be temporary and will recover from fiscal 2022.
Weaknesses: Geographical concentration, susceptibility to intense competition, and limited pricing flexibility: AGHL is focused on attracting patients from across Northeast India and neighbouring countries. However, ability to tap its entire potential customer base is constrained by its single-location operations. The hospital also remains vulnerable to increased local competition in the event of entry of any major player in the region. The image-sensitive nature of the healthcare industry aggravates the risk of revenue concentration from a single state. AGHL also faces pricing pressure because of its presence in a price-sensitive market; management has sought to mitigate this risk by moving up the value chain.
Exposure to regulatory risk: AGHL, like other hospital chains, remains exposed to regulations which may come into play, as introduced. For instance, the company's business performance was impacted by the price cap on cardiac stents imposed in the last quarter of fiscal 2017. Regulatory actions and their impact will remain monitorables |
Liquidity: Adequate AGHL has adequate liquidity with access to about Rs 20 crore of unutilised bank lines as of September 2020. Cash accruals are expected to gradually improve to over Rs. 40 cores annually post normalisation of operations from fiscal 2022. Company had cash surplus of Rs 60 crore as on March 31, 2020 which should remain adequate to meet long term repayment obligations of Rs 8 crore in fiscal 2021 and Rs 4 crore in fiscal 2022 and maintenance capex requirements. The bank lines were utilized at an average of 24% during the last six months to September 2020. CRISIL Ratings expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations, capex as well as incremental working capital requirements. CRISIL Ratings expects AHEL to also provide need based support, in case of exigencies |
Rating Sensitivity factors Upward Factors
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About the Company AGHL was incorporated in 1988 as Janapriya Hospitals Corporation Ltd by the promoters of Duncans Industries Ltd. GDPL acquired 50% stake in AGHL in 1996 and AHEL acquired the remaining stake in 2002. AGHL became an equal JV of AHEL and GDPL and commenced operations from January 2003 with a 325-bed capacity, which was increased to 700 beds by November 2017. The company specialises in more than 50 disciplines and provides the latest diagnostic facilities and treatment.
On April 22, 2021, AHEL acquired the 50% stake of GDPL in AGHL. Consequently, AGHL has become a 100% subsidiary of AHEL. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
&Interchangeable with Letter of credit & Bank Guarantee |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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