| Apollo Hospitals Enterprise Limited | ||||||||
| Ratings Reaffirmed | ||||||||
| Rating Action | ||||||||
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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 the 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, with 71 hospitals (45 owned, with capacity of 8,822 beds; 5 managed with 909 beds; 11 day-care/short-surgery centres with 270 beds; and 10 cradles with 260 beds) as on March 31, 2020. It has presence predominantly in Chennai and Hyderabad clusters, and has expanded to cities such as Mumbai, Ahmedabad, and tier-2 and 3 towns. Its market leadership is driven by strong brand equity and superior quality of service. CRISIL believes AHEL's leading market position to sustain over the medium term given its wide geographical footprint and diverse specialty mix. * Leading pharmacy business with healthy profitability AHEL runs India's largest pharmacy chain, Apollo Pharmacy, with 3,766 stores across the country as on March 31, 2020. The front-end retail pharmacy business, classified as standalone pharmacy (SAP), has reported healthy revenue growth of over 20% in compounded annual terms during the past five years, aided by store addition and improving revenue per store. Further, operating margin of the SAP business has improved to 6.0% in fiscal 2020, from 3.3% in fiscal 2015, supported by cost rationalisation and increased share of private labels. While, the hospital business has been impacted by the pandemic in the current fiscal, the pharmacy business has not seen much of an impact, and is expected to support consolidated profitability of AHEL during fiscal 2021. * Healthy and improved operating profitability; expected to be impacted in fiscal 2021 During fiscal 2020, AHEL reported consolidated EBITDA (pre-IndAS116) of Rs 1,309 crore (Rs 1,087 crore in FY19), with operating margin (pre-IndAS116) of 11.5% (11.1%). Growth was driven by a robust hospital franchise, improved profitability of the clinics and cradle business (housed under AHEL's subsidiary, Apollo Health and Lifestyle Ltd {AHLL}), and a strong pharmacy business. Profitability in the hospital segment (pre-IndAS116 EBITDA margin of 17.4% in FY20) was supported by better pricing, occupancy and performance of new hospitals. Also, AHLL has sustained improvement in its operating performance and turned EBITDA positive in fiscal 2020. However, lower occupancies at hospitals may keep profitability subdued and weaken consolidated performance in fiscal 2021. Though this could be a temporary phase, the hospital business should recover during the second half of the fiscal. Pace of recovery in occupancy level and operating margin will be key monitorables. Weaknesses: * Moderate financial risk profile Financial risk profile remains constrained by high debt levels. Significant capex towards new hospitals have led to increased consolidated debt (Rs 3627 crore in fiscal 2020, from Rs 1345 crore in fiscal 2014). While improvement in EBITDA, sale of investment in Apollo Munich (generated around net Rs 200 crore for AHEL in fiscal 2020) and completion of greenfield capex led to improvement in leverage and gearing over the past two fiscals (2.7 times and 1.1 times, respectively, in fiscal 2020, from 4.2 times and 1.2 times in fiscal 2018), the same remains moderately high. Also, interest coverage ratio has improved from 2.7 times in fiscal 2018, to 3.4 times in fiscal 2020. Credit metrics could be adversely impacted in fiscal 2021. However, expected recovery in operating performance, reduced capex and completion of transfer of SAP business will support cash flows in the current fiscal. Moderation in credit metrics should be temporary, and they should improve over the medium term. On consolidated basis, gearing, interest coverage ratio, and leverage ratio should correct by fiscal 2022, and should remain below 1.0 time, above 3.5 times, and below 2 times, respectively, over the medium term. However, any delay in correction of leverage shall be a rating sensitivity factor. * Exposure to regulatory risk: AHEL remains exposed to regulatory risk faced by the healthcare industry. Government policy on capping of prices for medical procedures and devices such as cardiac stents and knee implants, impacted revenue and profitability of players during fiscals 2017 and 2018. Select state governments have also capped treatment charges for Covid-19. While we believe the impact is not material currently, this remains a monitorable. |
| Liquidity Strong |
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AHEL has healthy liquidity, as reflected in cash and cash equivalents of about Rs 250 crore, and unutilised limit of around Rs 335 crore as on June 30, 2020. Bank limit utilisation averaged 50% for the six months through June 2020. While cash burn is expected in the first quarter of fiscal 2021, the company has sufficient liquidity to tide over the near term. Further, AHEL's liquidity profile is to be supported by reduced capex intensity and increased fund flow from identified asset monetisation plans during the current fiscal. The company has consolidated long term debt obligations of Rs 177 crore in fiscal 2021 and Rs 408 crore in fiscal 2022. CRISIL expects internal accrual, cash and cash equivalents and unutilised bank limit to be sufficient to meet its repayment obligations, capex as well as incremental working capital requirements. |
| Outlook: Stable |
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CRISIL believes AHEL will benefit from its leading market position, stable pharmacy business and the management's initiatives to control fixed cost. Furthermore, while near-term risk related to the pandemic persists, improvement in operating cash accrual, reduced capex and timely closure of asset monetisation plans should support debt reduction and drive improvement in gearing and debt protection metrics over the medium term. |
| Rating Sensitivity factors |
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Upward factors * Strong growth in revenue with higher than expected profitability, driven by higher occupancy levels, faster ramp-up of newer hospitals and continued growth momentum of pharmacy business * Improved financial risk profile, supported by increased cash accrual and timely completion of asset monetisation plans, resulting in consolidated gross debt to EBITDA ratio reducing to below 2.0 times on sustained basis Downward factors * Significant weakening in operating performance with lower-than-expected profitability * Delay in correction in leverage with consolidated gross debt to EBITDA ratio sustaining above 2.5 times |
| About the Company |
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AHEL started operations in 1983, with Apollo Chennai, India's first corporate hospital. The company had 71 hospitals, with total capacity of 10,261 beds as on March 31, 2020. Of these, 45 hospitals are owned including subsidiaries, JVs, and associates, with 8,822 beds; 5 hospitals with 909 beds are managed. It also has 11 day-care/short surgical stay centres with 270 beds, and 10 cradles with 260 beds. Besides its hospital-based pharmacies, AHEL runs pharmacy operations through a retail pharmacy chain of 3,766 stores, which accounted for 43% of revenue and 22% of EBITDA in fiscal 2020. As on June 30, 2020, Dr P C Reddy, AHEL's promoter, and his family members collectively owned 30.8% of the company's equity shares; mutual funds owned 8.4%; 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 and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Rating Withdrawn | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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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