Rating Rationale
January 17, 2023 | Mumbai
Apollo Hospitals Enterprise Limited
Ratings reaffirmed at 'CRISIL AA+ / Stable / CRISIL A1+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.2800 Crore
Long Term RatingCRISIL AA+/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.19 Crore Non Convertible DebenturesCRISIL AA+/Stable (Reaffirmed)
The common independent director on CRISIL Ratings Limited and Apollo Hospitals Enterprise Limited boards did not participate in the rating process or in the meeting of the rating committee, when the rating for securities of Apollo Hospitals Enterprise Limited was discussed. This rating was also not discussed in the meeting of CRISIL Ratings’ Board of Directors.
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities and debt programs of Apollo Hospitals Enterprise Limited (AHEL) at ‘CRISIL AA+/Stable/CRISIL A1+’.

 

AHEL’s revenues grew by 39%% in fiscal 2022 driven by improvement in the healthcare segment following higher increase in ARPOB (average revenue per occupied bed) and better occupancy level, particularly in the new hospitals, turnaround in Apollo Health and Lifestyle Ltd (AHLL) and the resilient pharmacy distribution business. Operating margins remained stable at ~15% in fiscal 2022 leading to improvement in consolidated operating profits (earnings before interest, tax, depreciation and amoritsation or EBITDA) to ~Rs.2260 crore, from ~Rs.1140 crores in fiscal 2021. Revenue grew by 8% to Rs 8047 crore in the first half of fiscal 2023, though operating margins moderated to ~13% (15% in first half of fiscal 2022) due to losses incurred by Apollo 24*7 digital platform business in the pharmacy division.

 

Despite lower contribution from covid related vaccinations, annual EBITDA is expected to sustain at over Rs 2,000 crore over the medium term, with better contribution from hospitals. Higher accrual is likely to support capital expenditure (capex) and fund potential acquisitions. Company has completed fund raising of ~Rs. 1200 cr through qualified institutional placement (QIP) route during fiscal 2021. This along with healthy cash generated enabled cash surpluses of Rs 1,300 crore as on September 30, 2022 (Rs.1537 crore as of March 31,2022), supporting investment plans. AHEL could also monetize its minority stake in Apollo Health Company Ltd (comprising pharmacy distribution and Apollo 24*7) which could further improve financial flexibility. Hence, consolidated debt is likely to remain comfortable over the medium term, despite sizeable capex plans. For instance, the ratio of gross debt (including lease liabilities)/EBITDA will remain below 2 times.

 

The ratings reflect the established position of AHEL in the healthcare and pharmacy distribution businesses, good operating profitability and healthy financial risk profile. These strengths are partially offset by exposure to regulatory risks and higher spending on the flagship Apollo 24*7 digital platform of the Apollo Group.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has used a combination of full, proportionate and moderate consolidation of the Apollo Hospitals group companies.

 

CRISIL Ratings has combined the business and financial risk profiles of AHEL and its subsidiaries (fully consolidated) and joint ventures (JVs; proportionately consolidated) because of their strong operational and financial linkages. The entities are collectively referred to as AHEL.

 

Please refer Annexure - List of a Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Dominant position in the healthcare sector

AHEL is the market leader in the private healthcare segment in India. It operates the largest chain of healthcare facilities, with 71 hospitals (44 owned with capacity of  8,574 beds; 5 managed with 851 beds; and 22 day-care/Cradle with 532 beds, on September 30, 2022). The operational beds are spread across the country, with particularly Tamil Nadu region ( 27%), Andhra Pradesh and Telangana region (%16%), and Karnataka region (10%). Market position is driven by strong brand equity and superior quality of service. AHEL is expected to sustain its leadership position over the medium term given the wide geographical footprint and diverse specialty mix. Company is expected to grow the number of beds by ~2000 beds in the next 2-3 years. Average revenue per operating bed (ARPOB) is among the highest in the industry. It has registered a steady CAGR of 6% from fiscal 2016 and stood at Rs. 51,136 in the first half of fiscal 2023 (Rs. 45,327 in fiscal 2022). The strong growth in ARPOB is attributed to strong pricing power and improving payer mix as several hospitals of Apollo group are center of excellence. The group is expected to maintain healthy ARPOB over the medium term through strong performance of their mature hospitals and continued improvement in the performance of the new hospitals.  

 

  • Growing pharmacy distribution business

With its strong distribution network, AHEL is the exclusive supplier for the 5000 standalone pharmacy stores (SAPs) of Apollo Pharmacy Limited (APL) which are spread across the country and provide geographic diversity to revenue. Furthermore, steady addition of stores have helped the pharmacy business to post a healthy compound annual growth rate (CAGR) of 18% in revenue during fiscals 2015-21. Operating margin (pre-IND AS 116) also improved to 6.5% in fiscal 2021 from 3.3% in 2015, supported by cost rationalisation and increased share of private labels. Over the medium term, continued store additions will help the pharmacy segment revenue to grow at around 10% CAGR. However due to elevated investment in the Apollo 24*7 platform, profitability is expected to be under pressure in the medium term and expected to be ~2%-2.5%.

 

  • Healthy operating profitability 

Excluding temporary decline in fiscal 2021, consolidated operating margin (post-IND AS 116) has continued to improve, rising to 15% in fiscal 2022 from 12.6% in 2016. While the operating margin of mature hospitals, have consistently remained over 20%, operating margin of new hospitals improved to 18.0% in fiscal 2022 from 8% in fiscal 2021. Besides, the Proton Cancer Care facility, which saw sizeable investments, turned EBITDA positive since the third quarter of fiscal 2021, and continues to step up profitability, with improved occupancy. In fiscal 2023 and near term however, despite healthy profitability in healthcare segment, higher spending on the Apollo 24*7 platform, will result in slight moderation in operating profitability to ~13-14%. Albeit higher operating leverage will ensure absolute operating profits mains healthy. Return on capital employed (ROCE) improved from 7% in fiscal 2017 to 18% in fiscal 2022 owing to better profitability and reduction in debt. It is expected to remain range bound between 15%-18% in the medium term due to continued investment in “Apollo 24*7.

 

  • Healthy financial risk profile and strong financial flexibility

The Group’s financial risk profile has improved materially with step up in operations, and reduction in debt levels supported by equity raise via QIP in fiscal 2021. The group also completed a sizeable portion of capex between fiscals 2015 and 2019, and some of the newer hospitals have also contributed to improved cash generation.

 

The group’s debt protection metrics remain healthy; total debt including, lease liabilities, remained stable at Rs. 3998 crores as on September 30,2022 compared to Rs.4068 crores as on March 31,2022 (Rs. 4160 at March 31, 2021). Healthy improvement in operating profitability, and controlled debt levels has enabled improvement in interest cover to ~ 5.7x in the first half of fiscal 2023 (5.97x in the first half of fiscal 2022). The group’s gearing stood at 0.84x (0.54x excluding lease liabilities) as on March 31,2022 compared with 0.96x (0.66x excluding lease liabilities) at March 31, 2021, while debt to EBITDA (post Ind AS 116) remained below 2 times in fiscal 2022 (3.64x times in fiscal 2021).

 

AHEL acquired 2 hospitals in fiscal 2023 – one at Gurgaon and majority stake in another in Kerala totally expensing ~Rs. 500 crore. AHEL is expected to incur capex of ~Rs.3000 crores between fiscals 2023-25 in phased manner. The group is expected to generate annual net cash accrual of over Rs 1000 crore annually which, along with cash and bank balance of ~Rs 1,300 crore as of September 2022, should be sufficient to meet major part of capex over the medium term. Hence, debt levels are unlikely to rise materially from current levels, which shall help maintain gross debt/EBITDA (post-IND AS 116) below 2 times and gearing at comfortable levels.

 

Weakness:

  • Exposure to regulatory risks

Government policy on capping of prices for medical procedures and devices (such as cardiac stents and knee implants) impacted revenue and profitability in fiscals 2017 and 2018. Any regulatory action and its impact will remain monitorable.

 

  • Increasing spend on pharmacy business

The company is expected to incur spend of Rs.500-600 crore annually over the next 2-3 years in technology and strengthening the Apollo 24*7 platform, which will result in the consolidated pharma business registering losses at the operating level. However, these investments are expected to strengthen the platform’s service offerings as well as reach, benefits of which will be realizable over the medium to long term.

Liquidity: Strong

The group’s liquidity position remains strong. Cash and equivalent stood at ~Rs 1,300 crore as of September 2022 while unutilised fund-based limit was Rs 313 crore. While the company is expected to maintain cash and bank balance of over Rs 500 crore on steady state basis, annual net cash accrual of over Rs 1,000 crore along with available liquidity will largely suffice to meet yearly debt repayment of Rs 250-360 crore and capex plans (~Rs.3000 crores over three years).

 

ESG Profile of AHEL

CRISIL Ratings believes that AHEL’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile. The hospital sector has low impact on the environment owing to its lower emission, comparatively lower waste generation and water consumption. This is because of low energy intensive nature of operations of hospitals. The sector also has moderate social impact because of its large workforce across its hospitals and value chain partners.

 

Key ESG highlights:

  • AHEL has deployed strategies to reduce its energy consumption by undertaking energy saving measures and AHEL has also increasingly shifted its procurement towards renewable sources for its energy requirements.
  • AHEL has also undertaken initiatives to conserve and reuse water as well as analysing the effluents in its waste water and assessing their impact on the environment.
  • AHEL has better gender diversity compared to its peers. The company also has superior permanent employee to contract employees ratio and has Sexual Harassment redressal committee with four members.
  • The governance structure is characterized by 50% of its board comprising independent directors, split in chairman and CEO position, strong investor grievance redressal and extensive disclosure

There is growing importance of ESG among investors and lenders. AHEL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of shareholding by foreign portfolio investors and moderate share of market borrowings in its overall debt

Outlook Stable

AHEL is expected to continue to benefit from its strong market position in the healthcare space, stable pharmacy business and good operating efficiencies over the medium term. Its financial risk profile will also remain healthy, supported by strong cash generation, amid sizeable capital spending.

Rating Sensitivity factors

Upward factors

  • Health revenue growth, and better  operating profitability and return on capital employed on a steady basis
  • Leverage (gross debt/EBITDA) sustaining below 1.3-1.5 times, supported by strong cash generation, and prudent capex spend.

 

Downward factors

  • Significant weakening of operating performance with lower-than-expected profitability
  • Higher than debt levels due to material increase in capex or sizeable acquisitions or investments in new ventures, leading to increase in gross debt/EBITDA to over -2.5 times, on sustained basis

About the Company

AHEL started operations in 1983 with Apollo Chennai, the first corporate hospital in India. As on September 30, 2022, the company had 71 hospitals with total capacity of  9,957 beds. Of these, 44 hospitals are owned, including subsidiaries, JVs and associates, with  8,874 beds; 5 hospitals with 851 beds are managed. It also has 22 day-care or cradles with 532 beds. Besides its hospital-based pharmacies, AHEL runs a wholesale pharmacy distribution business (exclusive supplier to Apollo Pharmacy Ltd, operating a retail pharmacy chain of 5,002 stores as on September 30, 2022). As of December 31, 2022, Dr P C Reddy (the promoter) and his family members collectively owned 29.33% of the equity shares (of AHEL.

Key Financial Indicators - consolidated (CRISIL Ratings-adjusted numbers)

Particulars

Unit

2022*

2021*

Revenue

Rs crore

14,677

10,567

Profit after tax (PAT)

Rs crore

1108

137

PAT margin

%

7.6

1.29

Adjusted debt / adjusted networth

Times

0.84

0.97

Adjusted debt / adjusted networth (excluding lease liabilities)

Times

0.54

0.66

Interest coverage

Times

5.82

2.54

*As per IND AS 116

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity level Rating assigned with outlook
NA Debentures# NA NA NA 19 Simple CRISIL AA+/Stable
NA Rupee term loan NA NA Mar-33 300 NA CRISIL AA+/Stable
NA Rupee term loan NA NA May-26 100 NA CRISIL AA+/Stable
NA Rupee term loan NA NA May-27 112 NA CRISIL AA+/Stable
NA Rupee term loan NA NA Sep-27 100 NA CRISIL AA+/Stable
NA Rupee term loan NA NA Feb-32 100 NA CRISIL AA+/Stable
NA Rupee term loan NA NA Oct-28 244 NA CRISIL AA+/Stable
NA Rupee term loan NA NA Jun-31 367 NA CRISIL AA+/Stable
NA Rupee term loan NA NA Dec-31 326 NA CRISIL AA+/Stable
NA Rupee term loan NA NA Apr-30 300 NA CRISIL AA+/Stable
NA Proposed Rupee term loan NA NA NA 551 NA CRISIL AA+/Stable
NA Working capital demand loan NA NA NA 150 NA CRISIL A1+
NA Working capital demand loan NA NA NA 150 NA CRISIL A1+

#yet to be placed

Annexure – List of entities consolidated

Name of the company

Type of consolidation

Rationale for consolidation

Apollo Home Health Care (India) Ltd

Full consolidation

All these companies have significant managerial, operational and financial linkages

Apollo Home Healthcare Ltd

Full consolidation

AB Medical Centres Ltd

Full consolidation

Apollo Health and Lifestyle Ltd

Full consolidation

Samudra Healthcare Enterprise Ltd

Full consolidation

Imperial Hospital & Research Centre Ltd

Full consolidation

Apollo Hospital (UK) Ltd

Full consolidation

Apollo Nellore Hospitals Ltd

Full consolidation

Apollo Rajshree Hospitals Pvt Ltd

Full consolidation

Apollo Lavasa Health Corporation Ltd

Full consolidation

Apollo Hospitals Singapore Pte Ltd

Full consolidation

Sapien Biosciences Pvt Ltd

Full consolidation

Total Health

Full consolidation

Apollo Health Care Technology Solutions Ltd

Full consolidation

Apollo Assam Hospitals Ltd

Full consolidation

Apollo Hospitals International Ltd

Full consolidation

Future Parking Pvt Ltd

Full consolidation

Apollo CVHF Ltd

Full consolidation

Apollo Dialysis Pvt Ltd

Full consolidation

Alliance Dental Care Ltd

Full consolidation

Apollo Sugar Clinics Ltd

Full consolidation

Apollo Speciality Hospitals Pvt Ltd

Full consolidation

Apollo Bangalore Cradle Ltd

Full consolidation

Kshema Healthcare Pvt Ltd

Full consolidation

Apollo Multi Speciality Hospitals Ltd

Full consolidation

Apollo Medics International Lifesciences Ltd

Full consolidation

Nayati Healthcare and Research NCR Ltd

Full consolidation

Kerala First Health Services Private Limited

Full consolidation

Indraprastha Medical Corporation Ltd

Moderate consolidation

Apollo Amrish Oncology Services Pvt Ltd

Moderate consolidation

Family Health Plan Insurance (TPA) Ltd

Moderate consolidation

Stemcyte India Therapeutics Pvt Ltd

Moderate consolidation

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 2800.0 CRISIL AA+/Stable / CRISIL A1+   -- 19-07-22 CRISIL AA+/Stable / CRISIL A1+ 27-01-21 CRISIL A1+ / CRISIL AA/Stable 31-07-20 CRISIL A1+ / CRISIL AA/Stable CRISIL A1+ / CRISIL AA/Stable
      --   -- 24-06-22 CRISIL AA+/Stable / CRISIL A1+   --   -- --
      --   -- 31-01-22 CRISIL AA+/Stable / CRISIL A1+   --   -- --
Fixed Deposits LT   --   -- 24-06-22 Withdrawn 27-01-21 F AA+/Stable 31-07-20 F AA+/Stable F AA+/Stable
      --   -- 31-01-22 F AA+/Stable   --   -- --
Non Convertible Debentures LT 19.0 CRISIL AA+/Stable   -- 19-07-22 CRISIL AA+/Stable 27-01-21 CRISIL AA/Stable 31-07-20 CRISIL AA/Stable CRISIL AA/Stable
      --   -- 24-06-22 CRISIL AA+/Stable   --   -- --
      --   -- 31-01-22 CRISIL AA+/Stable   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Proposed Rupee Term Loan 551 Not Applicable CRISIL AA+/Stable
Rupee Term Loan 300 Axis Bank Limited CRISIL AA+/Stable
Rupee Term Loan 300 Bank of India CRISIL AA+/Stable
Rupee Term Loan 326 HDFC Bank Limited CRISIL AA+/Stable
Rupee Term Loan 100 ICICI Bank Limited CRISIL AA+/Stable
Rupee Term Loan 100 NIIF Infrastructure Finance Limited CRISIL AA+/Stable
Rupee Term Loan 244 State Bank of India CRISIL AA+/Stable
Rupee Term Loan 367 State Bank of India CRISIL AA+/Stable
Rupee Term Loan 212 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA+/Stable
Working Capital Demand Loan 150 Axis Bank Limited CRISIL A1+
Working Capital Demand Loan 150 HDFC Bank Limited CRISIL A1+

This Annexure has been updated on 24-Mar-2023 in line with the lender-wise facility details as on 21-Mar-2023 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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