| Apollo Hospitals Enterprise Limited | ||||||||
| Rated amount enhanced | ||||||||
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| 1 crore = 10 million | ||||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL AA/FAA+/Stable/CRISIL A1+' ratings on the debt programmes and bank facilities of Apollo Hospitals Enterprise Limited (AHEL). |
| Analytical Approach |
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For arriving at the ratings, CRISIL has used a combination of full, proportionate and moderate consolidation of Apollo hospitals group companies. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established and leading market position in the healthcare segment: AHEL is currently the market leader in the Indian private healthcare segment. It operates the largest chain of hospitals in India with 70 hospitals (44 owned, with capacity of 8,683 beds; 5 managed with 934 beds; 11 day-care/short-surgery centers with 267 beds; and 10 cradles with 283 beds) as on March 31, 2019. It has presence predominantly in Chennai and Hyderabad clusters, and has expanded to regions such as Mumbai, Ahmedabad and tier-2 and 3 towns. Its market leadership is driven by strong brand equity and superior quality of service due to strong relationships with highly qualified consultants. CRISIL believes AHEL, due to its market leadership, is well-positioned to capitalise on the healthy growth in the Indian healthcare market. * Healthy and improved operating profitability: Operating profitability has been supported by robust hospital franchise and improved pharmacy business. AHEL witnessed improvement in its hospital segment's profitability (increased from 17% in fiscal 2018 to 18% in fiscal 2019) due to increased pricing, better occupancy and improved case mix. While mature hospitals continue to report healthy operating margins of more than 21%, new hospitals have also shown improvement in their operations with Navi Mumbai hospital turning EBITDA (Earnings before interest, tax, depreciation, and amortization) positive during fiscal 2019. The pharmacy segment's profitability improved to 5.2% in fiscal 2019 from 4.5% in fiscal 2018 aided by store addition, increase in revenue per store, increased share of private label sales and cost rationalization. Overall adjusted EBITDA has improved significantly to Rs 1,087 crore in fiscal 2019 from Rs 824 crore in fiscal 2018, and is expected to increase to more than Rs 1,200 crore in fiscal 2020, driven by increased profitability in new hospitals, and reduced loss in the clinics segment. Weaknesses * Average financial risk profile; though on an improving trend Financial risk profile is constrained by significant increase in debt over the past five fiscals. Delay in rights issue and sizeable capex led to increase in debt to around Rs 3,700 crore as on March 31, 2019, from Rs 1,350 crore as on March 31, 2014. As a result, ratio of debt to EBIDTA increased to over 4.2 times in fiscal 2018 from 2.0 times in fiscal 2014. However, the ratio has improved to 3.4 times as on March 31, 2019, due to improvement in EBITDA during the fiscal. Gearing has remained moderately high at 1.2 times as on March 31, 2019 from 0.9 time as on March 31, 2017. Going forward, the debt to EBITDA ratio is expected to reduce from existing levels, primarily due to reduction in debt through sale of investment in Apollo Munich Health Insurance Co. Ltd. (expected to generate around Rs 260 crores for AHEL) and business reorganization plans for pharmacy business (transfer of front-end retail pharmacy business to separate entity named Apollo Pharmacies Limited). Additionally, the company is working on plans to generate additional funds for deleveraging its balacesheet by the end of fiscal 2020. Also, the company is nearing the end of large capital expenditure (capex), with more than 2,400 beds commissioned in the past five years. Therefore, reduced capex and improving profitability is expected to drive improvement in free operating cash flow for debt reduction. However, any delay in correction of leverage ratio shall be a rating sensitive factor. * Continued operating loss in the cradles and clinics business Apollo Health and Lifestyle Ltd (AHLL), which operates clinics, diagnostic centres, short-stay surgery, and boutique birthing centers under the Apollo brand, has been incurring operating losses in the past few fiscals. Though AHLL has reported reduction in operating losses during fiscal 2019 and is expected to breakeven during second half of fiscal 2020, it is expected to report muted profitability over the medium term, as the new centres are expected to post losses due to early stage of operations. The equity infusion of Rs 450 crore by International Finance Corporation (IFC) in December 2016 was used towards funding losses, prepay debt and acquire 100% stake in Apollo Specialty Hospitals. In April 2018, AHEL infused around Rs 80 crore in AHLL to fund its losses in fiscal 2019. The extent of reduction in losses over the medium term will be a key monitorable. * Project implementation risk related to greenfield projects With completion of major greenfield projects during the past five years, AHEL witnesses reduced project execution risk. Apart from capital expenditure of Rs 350 crores towards completion of Chennai based proton center and setting up oncology segments in Vizag and Bhubaneshwar during fiscal 2020, AHEL expects to incur moderate annual expenditure of Rs 300 crores towards regular capex over the next 2-3 years. However, it faces moderate implementation risk with profitability of recently commissioned facilities as well as successful ramp-up of operations at facilities to be commissioned in the medium term remaining key monitorables. The management has the ability to complete projects on time without significant cost overrun, and make these profitable within a short span of time. Nevertheless, the company is susceptible to execution and market risks inherent in greenfield projects and to the risk of losses in the initial phase. |
| Liquidity |
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AHEL has maintained adequate liquidity reflected in improved cash accruals (increased from Rs 322 crore in fiscal 2018 to Rs 484 crore in fiscal 2019), average bank limit utilization (average utilization of 72% during fiscal 2019) and adequate cash balance of more than Rs 400 crore for fiscal 2019. AHEL had average current ratio of 1.2x and net working capital cycle of around 10 days for fiscal 2019. Further, AHEL's liquidity profile is expected to improve during fiscal 2020 on account of healthy operating profitability, reduced capex intensity and increased fund flow from identified asset monetization plans. |
| Outlook: Stable |
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CRISIL believes AHEL will maintain its healthy revenue growth while increasing its capacity and maintaining steady operating profitability. Healthy cash accrual, prudent funding of capex and timely closure of asset monetization plans should result in conservative gearing and comfortable debt protection metrics. |
| About the Company |
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AHEL started operations in 1983 with Apollo Chennai, the first Indian corporate hospital. The company had 70 hospitals, with total capacity of 10,167 beds as on March 31, 2019. Of these, 44 hospitals are owned including subsidiaries, JVs, and associates, with 8,683 beds; 5 hospitals with 934 beds are managed. It also has 11 day-care/short surgical stay centres with 267 beds, and 10 cradles with 283 beds. Besides its hospital-based pharmacies, AHEL runs pharmacy operations through a retail pharmacy chain of 3,428 stores, which accounted for 39% of revenue in fiscal 2019. As on March 31, 2019, Dr P C Reddy, AHEL's promoter, and his family members collectively owned 34.4% of the company's equity shares; mutual funds owned 7.1%; and public and foreign institutional investors owned the remainder. |
| Key Financial Indicators - Consolidated (CRISIL adjusted numbers) | ||||||||||||||||||||||||
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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) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - List of Entities Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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