| Dr. Agarwals Eye Hospital Limited | ||||
| Rating outlook revised to 'Positive'; Rating Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Dr. Agarwals Eye Hospital Limited (DAEHL; part of Dr. Agarwal Healthcare group) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A-‘.
DAEHL continues to benefit from being a part of Dr. Agarwal Healthcare group headed by strong parent Dr. Agarwals Healthcare Limited (DAHCL). The outlook revision reflects expected sustenance of an enhanced business performance. The group’s Revenue grew by 50% on year to Rs.697.6 crores in fiscal 2022 and the operating margins improved to 28.1% in fiscal 2022. A strong brand recall and market presence coupled with prudent expansions, both greenfield and acquisitions, are attributable to such performance. The group has to its fold 126 centres as on date against 95 centres in FY21. The group reported revenues of more than Rs.180 crores in the quarter ended June 2022 while operating margins moderated to more than 21%. The ensuing quarters are expected to see an improvement in profitability margins with recently added centres maturing.
The gearing improved to 2.1 times as on 31st March, 2022 vis-à-vis 2.22 times and interest coverage improved to 4.1 times in FY22 vs 1.81 times in the previous fiscal. Surplus cash of more than Rs.200 crore from the recent infusion provides additional cushion to liquidity. The same along with incremental accruals and need based external borrowings is expected to be utilized for planned expansion in the next few quarters. Healthy net cash accruals in the range of Rs.150-180 crore is expected to provide additional support to liquidity. Debt funding of future expansions and its impact on capital structure will be key rating monitorables.
The ratings reflect the strong operational, technical and management support that DAEHL receives from its parent Dr. Agarwals Healthcare Limited (DAHCL). The ratings also factor in established market position, healthy brand recall in the eye care segment and its comfortable financial risk profile. These strengths are partially offset by competition from other hospitals/standalone clinics and geographical concentration risk |
Analytical Approach For arriving at DAEHL’s rating, CRISIL Ratings has applied its parent notch up framework for framework on notching up for ratings for support received from its parent, DAHCL. |
Key Rating Drivers & Detailed Description Strengths: Strong operational, managerial, and financial support from DAHCL: DAHCL holds a stake of 71.75 percent in DAEHL and will continue to provide full operational, managerial, and technical support over the medium term. CRISIL Ratings takes note of corporate guarantees on behalf of DAEHL extended by DAHCL, to the company's lenders, which assures payment of obligation.
Established market position and healthy brand recall: DAEHL has a strong presence in eye care majorly in Tamil Nadu, with more than 25 centers located in Tamil Nadu. With a long vintage of close to 30 years, the company has built an established market position and healthy brand recall as reflected in turnover of around Rs.201.7 crore and operating profitability of around 29.3 percent for fiscal 2022.
Comfortable financial risk profile: DAEHL’s financial risk profile is healthy, as reflected from a strong capital structure and healthy debt protection metrics. The total outside liabilities to tangible networth ratio (TOLTNW) was moderate at around 2.96 times as on March 31, 2022. The Debt protection metrics are healthy marked by interest coverage and net cash accrual to total debt ratios at around 8.2 times and 1.39 times for fiscal 2022.
Weaknesses: Competition from other hospitals/standalone clinics: The company faces competition from other large multi-specialty hospitals, as well as neighborhood eye clinics. Despite well-established hospitals, the company continues to face competition from neighborhood eye clinics for smaller procedures like cataract and from large hospitals for more complex procedures.
Geographic concentration risk: DAEHL’s scale of operations remains moderate, reflected by revenues at Rs.201.7 crore, for fiscal 2022, deriving more than 90% of its revenues from the state of Tamil Nadu. This renders the company to risks relating to geographic concentration. |
Liquidity: Strong Average month end bank limit utilization remains moderate at less than 80% over the last 12 months ended August 2022. Net cash accruals of more than Rs.43 crore is expected to be sufficient against repayment obligations of less than Rs.5 crore. Surplus cash balance of more than Rs.20 crore as on August, 2022 provides additional support to liquidity. |
Outlook: Positive CRISIL Ratings believe DAEHL will continue to benefit from strong market position and healthy brand recall over the medium term |
Rating Sensitivity Factors Upward factor
Downward factor
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About the Company Incorporated in 1994, DAEHL is engaged in the business of providing eye care and related businesses. It is listed on Bombay Stock Exchange. DAHCL holds 71.75 percent of the shareholding in DAEHL.
Incorporated in 2010, DAHCL is engaged in the business of running, owning and managing eye care hospitals, opticals, pharmacies and other related services across the country, majorly through hospitals in South India and Maharashtra. The group is currently managed by Dr. Amar Agarwal, the Chairman and Managing director and Mr. Adil Agarwal, the chief executive officer.
Orbit was acquired by DAHCL in fiscal 2017 and is engaged in providing eye care related services through hospitals located in Southeast Asia and Africa.
The group derives around 60 percent of its revenues from surgeries, 15 percent from consultation and the balance from the sale of pharmaceutical and optical products |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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This Annexure has been updated on 10-Oct-2022 in line with the lender-wise facility details as on 7-Jul-2022 received from the rated entity.
Criteria Details
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