Rating Rationale
November 05, 2020 | Mumbai
Columbia Asia Hospitals Private Limited
Rating placed on 'Watch Developing'
 
Rating Action
Total Bank Loan Facilities Rated Rs.543 Crore
Long Term Rating CRISIL BBB+ (Placed on 'Rating Watch with Developing Implications') 
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has placed its rating on the bank loan facilities of Columbia Asia Hospitals Private Limited (CAHPL) on 'Rating Watch with Developing Implications'.
 
The rating action follows the announcement made by CAHPL that Manipal Health Enterprises Pvt Ltd based of Bengaluru is acquiring 100% stake in the company. The transaction is subject to various regulatory approvals. CRISIL is in discussion with the management and shall take a final rating action once the transaction is complete and have an understanding of its impact on the company's business and financial risk profile.
 
The rating continues to reflect CAHPL's established market position in the healthcare segment and wide geographical reach, moderate financial profile and improving operating efficiencies. These strengths are partially offset by its exposure to intense competition and regulatory risk.
 
CRISIL had on 15th October, 2020 assigned the rating of 'CRISIL BBB+/stable' to the long term bank facilities of CAHPL.

Key Rating Drivers & Detailed Description
Strengths: 
* Established market position and wide geographical reach: Established in 2003, CAHPL has established market position in the health care segment supported by its strong infrastructure, long presence and diverse specialties. CAHPL has 11 hospitals with total bed capacity of 1193 and has diverse geographic reach with presence across Bengaluru, Kolkata, Gurugram, Ghaziabad, Patiala, Mysuru and Pune. CAHPL is setting up one more hospital in Pune with a total bed capacity of 205 in next fiscal which will take the total bed capacity to 1398. Over the medium term, its state of the art health care facilities, multiple specialties and wide geographical presence should support its business risk profile.
 
* Moderate financial profile: CAHPL's capital structure is moderate due to limited reliance on external funds yielding gearing of 2 times and total outside liabilities to adjusted tangible networth (TOL/ANW) of 2.44 times for the year ending on 31st March 2020. Supported by improvement in operating profitability, CAHPL's debt protection metrics were moderate. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 2.1 times and 0.14 time for fiscal 2020. While debt protection metrics would come under pressure in fiscal 2021 due to weaker business performance attributable to coronavirus outbreak, it is expected to improve over the medium term as normalcy returns.
 
* Improving operating efficiencies: CAHPL's occupancy has been improving over the years and is currently over 50%. The occupancy is expected to improve over the medium term as some of the newer hospitals mature. In addition, average length of inpatient stay is less than 3 days for the company; reflecting its sound operating efficiencies. While operating profit is expected to be moderate in fiscal 2021 on account of disruption in operation due to coronavirus outbreak, performance is expected to improve over the medium term as situation normalizes and new hospitals start contributing towards profitability.
 
Weaknesses:
* Exposure to intense competition and regulatory risk: The hospitals under CAHPL are exposed to competition from various large hospital chains in the regions it operates in. CAHPL 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.
 
* Exposure to project risk:
The company is setting up a hospital in Pune which is expected to commence operations by December ' 2021. Any cost or time overrun in setting up the hospital could moderately impact the financial risk profile of the company. As most of its hospitals are mature, initial losses that may emanate from the new hospital is expected to impact the profitability marginally.
Liquidity Adequate

CAHPL's liquidity is adequate. The company is estimated to generate accruals of about Rs 60 crores over the medium term against repayment obligation of about Rs 25 crores. CAHPL has Rs 35 crores of overdraft limit which remains un-utilised during the last 11 months ended August ' 2020. Though repayment is ballooning in nature, its accruals are expected to improve over the medium term and would be adequate to service debt. CAHPL has liquid asset of Rs 79 crores in addition to Rs 20 crores offered to lenders as debt service reserve which further aids its liquidity. The company had availed COVID19 moratorium ' I towards principal repayment with all its lenders.

Rating Sensitivity factors
Upward factors
* Sustained increase in scale of operations and operating profitability
* Sustenance of net cash accrual to repayment of more than 2.5 times
 
Downward factors
* Large decline in scale of operations and profitability resulting in net cash accruals of less than Rs.60 crores.
* Larger than expected debt funded capital expenditure or time or cost overrun in ongoing project resulting in weaker capital structure or Debt / EBITDA.
About the Company

CAHPL was incorporated in 2003 and commissioned its first operating hospital in 2005 in Hebbal, Bangalore. The company is engaged in providing healthcare services and operates 11 hospitals in India. CAHPL is a 100% subsidiary of International Columbia 2004, which is in turn 100% subsidiary of International Columbia US LLC (IC).  IC is promoted by Daniel Baty & family and Mitsui & co which holds 26.14% and 26.09% shares respectively.

Key Financial Indicators
As on / for the period ended March 31   2020 2019
Operating income Rs crore 1008.8 899.23
Reported profit after tax Rs crore (19.9) (9.65)
PAT margins % (1.9) (1.07)
Adjusted Debt/Adjusted Net worth Times 2 1.3
Interest coverage Times 2.1 1.25

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)
ISIN Name of instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs Cr)		 Complexity
Levels		 Rating Assigned
with Outlook
 NA Overdraft NA NA NA 35  NA CRISIL BBB+/Watch Developing
 NA Rupee Term Loan NA NA Mar-2029 508  NA CRISIL BBB+/Watch Developing
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  543.00  CRISIL BBB+/(Watch) Developing  28-10-20  CRISIL BBB+/Stable    --    --    --  -- 
        15-10-20  CRISIL BBB+/Stable               
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Overdraft 35 CRISIL BBB+/Watch Developing Overdraft 35 CRISIL BBB+/Stable
Rupee Term Loan 508 CRISIL BBB+/Watch Developing Rupee Term Loan 508 CRISIL BBB+/Stable
Total 543 -- Total 543 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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