Detailed Rationale

CRISIL Ratings has revised its outlook on the long term bank facilities of Global Health Patliputra Pvt Ltd (GHPPL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A+’

 

The outlook revision factors in similar rating action on the parent Global Health Ltd (GHL; CRISIL AA-/Positive/CRISIL A1+). The ratings also factor faster-than-expected ramp up in operations with significant improvement in scale and margin. GHPPL receives technical and managerial support from the parent, which exercises oversight on operations and key functions. It also benefits from the extensive experience and track record of the promoter, Dr Naresh Trehan, founder-promoter of GHL in setting up and stabilising greenfield hospitals, under the well-established brand, Medanta.

 

Fiscal 2024 was the second full year of operations for GHPPL. Revenues rose by 70% y-o-y to Rs 289 crores from Rs 170 crores in fiscal 2023, driven by increase in occupancy, bed addition and healthy average revenue per operating bed(ARPOB) of over Rs 45,000. In-patient revenue formed nearly 81% of overall revenue and stood at Rs 235 crore. Outpatient revenue of Rs 46 crore was recorded during the year. Going forward, the company plans to expand its bed capacity every year, funded via internal accrual keeping in mind the demand situation. Stabilisation of occupancy and increasing traction from the outpatient segment should drive overall revenue. While 25% of the capacity is allocated for government schemes, ARPOB could be lower compared with GHL’s hospitals in Gurugram and Lucknow, but still will be healthy vis-à-vis peers, due to various specialty offerings. Double digit revenue growth momentum will continue over the medium term due to improvement in occupancy levels as there has been good traction in scheme patients.

 

Following the footsteps of the Lucknow hospital, GHPPL achieved operational breakeven in the first year of its operations in fiscal 2023. With improvement in revenues, the operating profitability improved to 23.5% from 9.8% in fiscal 2023 supported by benefits of operating leverage. Introduction of newer specialties and increasing traction in outpatient department would keep the margin healthy at 23-25% over the medium term .Supported by better profitability in fiscal 2024, GHPPL achieved breakeven in profit after tax(PAT) in fiscal 2024.

 

GHPPL, which represents the Medanta group’s presence in east India, commissioned its hospital in Patna during the second half of fiscal 2022, with 100 beds. The total project cost was funded via a debt: equity ratio of 55:45 with overall capacity of nearly 650 beds, implemented in phases. The bed capacity has increased to around 360 beds as on March 31,2024. Further, over 100 beds will be added in due course. Besides the brand image, infrastructure and recruitment of established doctors, the hospital will also benefit from reference by two diagnostic centres of GHL, located in Patna and Darbhanga. CRISIL Ratings expects revenue of GHPPL to gradually ramp up in similar trajectory to its other group entity in Lucknow, under Medanta Holdings Pvt Ltd (MHPL), which commenced operations in November 2019.

 

The prudent funding mix for GHPPL’s hospital at Patna (Bihar), with long maturity loans, helps in easing pressure on liquidity in the initial phase. The promoter group is also likely to offer adequate funding to ensure debt servicing and capital expenditure are met until operations and cash generation stabilise. These rating strengths are partially offset by the early stage of operations at the hospital, and the sub-par financial risk profile, constrained by initial gestation losses.

Analytical Approach

To arrive at the ratings for GHPPL, CRISIL Ratings has factored support from its parent, GHL since GHPPL is an integral part of the Medanta group (whose flagship is GHL), and will continue to receive operational, managerial, and financial support from the parent.

Key Rating Drivers & Detailed Description

Strengths:

• Strong parentage along with experience and track record of founder promoter, Dr Naresh Trehan: GHPPL benefits from the leadership of Dr Naresh Trehan, one of India’s leading cardiac surgeons and the founder promoter of GHL. Dr Trehan was instrumental in the establishment and subsequent management of the Escorts Heart Institute & Research Centre (Escorts) [New Delhi]. He has spent 18 years at Escorts, developing healthcare delivery in India and research in cardiology. Dr Trehan also successfully commissioned GHL’s flagship, Medanta Medicity, the largest single-location hospital in the private sector in India and Medanta Hospital, Lucknow. Furthermore, GHL has diversified its geographical reach through hospitals managed at Ranchi and Indore.

 

These factors have enabled the Patna hospital to achieve operational break-even in its first full year of operations i.e. fiscal 2023 and improve its operating profitability to 23.5% within the first 2 years of commencing operations.

 

• Prudent funding mixed with long maturity loans: GHPPL’s facility is a 650-bedded hospital in Pataliputra, Patna, with the total project cost funded through a debt: equity ratio of 55:45. GHL has infused equity of over Rs 350 crore on date. Debt repayment is spread over a 13-year period (including moratorium of four years) and will be back-ended. Furthermore, the debt obligations are structured in a way that the initial payments are low. The IPO primary issuance proceeds of Rs. 125 Crs (out of Rs. 500 Crs.) parent GHL has been utilized for investment in GHPPL for 10 years in the form of debt for prepayment of external borrowings in April, 2023. Repayment of the loan shall start post moratorium of one year i.e. fiscal 2025

 

Weaknesses:

• Early stage of operations and vulnerability to demand risk: While GHPPL commenced operations in the second half of fiscal 2022, it remains exposed to demand risk associated with large greenfield projects. While the ramp up in occupancy at GHPPL has been better than anticipated, it remains exposed to demand risk being in the early stages of its operations.

 

Though the strong brand reputation of Dr Trehan and reference from GHL’s diagnostic centres in Patna and Darbhanga should help attract patients, this is yet to be demonstrated, considering the existing competition in the vicinity. Experienced doctors and staff from other hospitals of GHL are also likely to be made available at the Patna facility on a need-basis.

 

• Sub-par financial risk profile post-commissioning of project: Greenfield hospitals break-even at the operating profit level within 3-4 years once they commence operations. They normally witness losses in the initial phase as occupancy picks up gradually and the hospital gains operational efficiency. Also, losses could be substantial and directly proportional to the scale of operations. However , supported by ramp up in occupancy, GHPPL has achieved break even in fiscal 2023 and has recorded healthy profitability in fiscal 2024. However , relative to the size of the project, the operating profits remain nominal. Hence, at a standalone level, the financial risk profile is sub-par with gearing of over 2 times as on March 31,2024.

 

With progressive debt reduction and improvement in accruals , the capital structure will improve over the medium term.

Liquidity: Adequate

Liquidity is marked by an unencumbered cash balance of around Rs 32 crore as on March 31, 2024. The company inaugurated the in-patient facility in October 2021 and commenced operations after obtaining necessary approvals. Its long-term debt obligations are comfortable, aided by the long tenure and back-ended nature of repayments. Further , the parent GHL has infused Rs 125 crores as unsecured loans to part pre-pay the long term debt. GHPPL has long term debt repayment obligations of Rs 15-25 crores per annum over the medium term which will be met by internal accruals of over Rs 50 crore per annum. Further, capex requirements of Rs 30-50 crore per annum will also be funded by internal accruals.

 

Furthermore, the parent, GHL is likely to provide adequate funding support to ensure timely debt servicing, until operations and cash generation stabilise.

Outlook: Positive

CRISIL Ratings believes GHPPL will benefit from the established track record of its management in stabilising operations at greenfield hospitals, consolidation of operations and key functions, and adequate oversight from the parent, GHL.

Rating sensitivity factors

Upward factors:

• Upward revision in the rating of debt facilities of the parent, GHL by 1 or more notches
• Significant ramp up in operations and steady operating margin, resulting in healthy cash generation
• Material reduction in debt levels and improvement in debt metrics

 

Downward factors:

• Downward revision in rating of debt facilities of the parent, GHL by 1 or more notches
• Sustained and significant decline in revenue and operating margin
• Lower-than-expected cash generation and any major debt funded capex, weakening the debt metrics

About the Company

GHPPL is a 100% owned subsidiary of GHL and houses the group’s Patna Hospital.

 

GHPPL set up a greenfield hospital in Patna, Bihar and inaugurated the in-patient facility in the second half of fiscal 2022. The hospital commenced operations after receiving necessary approvals, with 100 beds initially (the structure now is ready for 650 beds).  Fiscal 2023 was the first full year of operations and the company achieved operational breakeven in same year. Out of the 358 beds installed as on March 31, 2024, 290 are operational beds.

About the Group

GHL was established in 2004 by Dr Naresh Trehan. A world-class, super-specialty, tertiary-care hospital in Gurugram, Medanta Medicity commenced operations in November 2009, and has capacity of ~ 1,400 beds and ~40 operation theatres, besides state-of-the-art diagnostic and laboratory facilities.

 

In fiscal 2015, GHL entered an arrangement to manage a ~150-bed hospital each in Indore and Ranchi on a lease basis. The company also operates two hospitals at Lucknow and Patna under 100% subsidiaries named MHPL and GHPPL, respectively. The Lucknow hospital commenced operations in November 2019 and the Patna Hospital in the second half of fiscal 2022; the company is also setting up a greenfield hospital in Noida. GHL also incorporated a wholly owned subsidiary, GHPDPL, in June 29, 2022, and proposes to move its outpatient pharmacy business to this entity and start diagnostic services in it.

 

Consolidated operational bed count stood at ~2,347 as on June 30, 2024.

Key Financial Indicators (GHPPL)

Period ended March 31 - CRISIL Ratings adjusted numbers	Unit	2024	2023
Revenue	Rs crore	289	169
Profit after tax (PAT)	Rs crore	7	(29)
PAT margin	%	2.6	(17.4)
Adjusted debt/Adjusted networth*	Times	2.10	1.47
Interest coverage	Times	1.5	0.8

*Adjusted debt factors in lease liabilities

Any other information: Not Applicable