| 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 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 together referred to herein as AHEL. |
| 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 71 hospitals (43 owned, with capacity of 8333 beds; 7 managed with 1234 beds; 11 day-care/short-surgery centres with 229 beds; and 10 cradles with 311 beds) as on June 30, 2017. It has presence predominantly in Chennai and Hyderabad clusters, and has expanded to regions such as Mumbai 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 operating profitability; expected to improve over the medium term: Over the past 3 years, operating profitability has been supported by hospitals and pharmacy segments. The pharmacy segment's profitability improved to 4.3% in fiscal 2017 from 3.3% in fiscal 2015 aided by store addition, increase in revenue per store, and cost rationalisation, and is expected to improve over the medium term. The company is nearing the end of large capital expenditure (capex), with 1450 beds commissioned in the past three years. It plans to add 265 beds (owned, subsidiaries, and JVs) over the three fiscals through 2020. Earnings before interest, tax, depreciation, and amortization (EBIDTA) was stagnant at Rs 725-800 crore in the past three fiscals, and was impacted by temporary slow-down in Chennai cluster and stent price control in 2017. EBIDTA is expected to be around Rs 800 crore in fiscal 2018, but is expected to increase to Rs 900-1000 crore by fiscal 2019, driven by increased profitability in new hospitals, and reduced loss in the clinics segment. Weaknesses * Modest financial risk profile: Financial risk profile is constrained by significant increase in debt and stagnation in EBIDTA over the past three fiscals. Delay in rights issue and sizeable capex led to increase in debt to more than Rs 3100 crore as on March 31, 2017, from Rs 2000 crore as on March 31, 2015. As a result, ratio of debt to EBIDTA increased to over 3.5 times in fiscal 2017 from around 2.5 times in fiscal 2015. However, the ratio is expected to improve to about 3 times by March 2018, primarily due to reduction in debt through infusion of equity, and to around 2.5 times by March 2019 with improvement in EBIDTA. Despite increase in debt, gearing remained low at 0.93 time as on March 31, 2017. Timing and quantum of equity infusion over the medium term will 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 had operating losses in the past few fiscals, which will continue in fiscal 2018. While existing centres are expected to break even at the operating level over the medium term, the new centres are expected to post losses due to early stage of operations. However, the risk is mitigated by equity infusion of Rs 450 crore by International Finance Corporation (IFC) in December 2016, which will fund losses and limit debt. The extent of reduction in losses over the medium term will be a key monitorable. * Project risk embedded in greenfield projects AHEL's greenfield bed addition of 265 beds at an estimated cost of Rs 840 crore over the medium term constitutes only 3% of its current capacity. Of this, Rs 340 crore was spent till June 2017. However, profitability of recently commissioned facilities (including Navi Mumbai) as well as successful ramp-up of operations at facilities to be commissioned in the medium term remain 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. |
| 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 and prudent funding of capex will 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 71 hospitals, with total capacity of 10,107 beds as on June 30, 2017. Of these, 43 hospitals are owned including subsidiaries, JVs, and associates, with 8333 beds; 7 hospitals with 1234 beds are managed or franchised. It also has 11 day-care/short surgical stay centres with 229 beds, and 10 cradles with 311 beds. Besides its hospital-based pharmacies, AHEL runs pharmacy operations through a retail pharmacy chain of 2643, stores, which accounted for 39% of revenue in fiscal 2017 and the first quarter of fiscal 2018. As on June 30, 2017, Dr P C Reddy, AHEL's promoter, and his family members collectively owned 34.38% of the company's equity shares; Oppenheimer Developing Markets Fund owned 8.26%; Malaysian sovereign fund Khazanah Nasional Bhd (through Integrated Mauritius Healthcare Holdings Ltd) owned 10.85%; and public and foreign institutional investors owned the remainder. |
| 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#Yet to be placed |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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