| Krishna Institute of Medical Sciences Limited | ||||||
| Suspension revoked; 'CRISIL AA-/Stable/CRISIL A1+' assigned to bank debt | ||||||
| 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 revoked the suspension1 of its ratings on the bank facilities of Krishna Institute of Medical Sciences Limited (KIMS), and has assigned its 'CRISIL AA-/Stable/CRISIL A1+' ratings on KIMS' bank facilities. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has fully consolidated the business and financial risk profiles of KIMS and its subsidiaries, which are strategically important to, and have a significant degree of operational integration with KIMS. These companies are together referred to as KIMS group. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established market position: Through its network of nine hospitals under the 'KIMS Hospital' brand, the group has an established presence in the South Indian market. The group also has a long operational track record of 16 years in the tertiary and the quaternary healthcare segments and also benefits from the strong brand reputation and the extensive experience of the group's promoters in the healthcare industry. In terms of specialties, cardiac treatments account for the highest share of revenues at ~22%, followed by neuro sciences ~16% and renal sciences ~11%. The balance is spread across oncology, mother and child, gastric sciences, orthopedics and others. The group, with a combined bed capacity of 3004 beds as on March 31, 2020, is one of the leading players in the tertiary care segment in Andhra Pradesh and Telengana. The group's Secunderabad facility is one of the largest single location hospitals with ~1000 beds, offering multi-specialties. * Sound operating efficiency: The group has reported above average operating profitability of around 21% since fiscal 2015, despite constant capacity addition, including through acquisitions. The policy of providing equity partnership to its key doctors, have enabled the company to attract talents in Tier II locations and maintain low attrition levels and tight control over costs. These factors coupled with prudent capital spending have helped KIMS to turn around acquired hospitals as well as achieve break-even at newer hospitals in a short span of time, translating into healthy operating capabilities. Despite bed additions both through organic expansions as well as strategic acquisitions, occupancy levels have improved to 73% in fiscal 2020 compared to 63% in fiscal 2015. ARPOBD has also risen to Rs. 19775 from Rs 16775 during the same period indicating improvement in services provided. The presence of highly qualified professionals enables a low average length of stay (about 4.0 days during fiscal 2020), which is comparable to large hospital chains. Healthy profitability and increasing occupancy levels, have enabled a steady improvement in the group's return on capital employed (RoCE), which stood at ~20% in fiscal 2020, compared with ~13-15% in earlier years. As the newly acquired hospitals ramp up, margins and returns are expected to be maintained at healthy levels over the medium term. * Healthy financial risk profile: Financial risk profile is improving over time, as reflected in sizeable net worth and comfortable debt protection metrics. The group has a demonstrated track record of maintaining prudence in its expansion plans as indicated by its declining dependence on external debt, despite steady organic and strategic inorganic expansions, exceeding Rs.600 crore since fiscal 2015. While no major expansion are expected in fiscal 2021, the group is likely to pursue organic/inorganic expansions over the medium term, which will help reduce its dependence on the flagship hospital. The group however is expected to remain prudent in its funding and the capex spend is also likely to be spread out. Further, the promoters and private equity investors are also expected to be willing to raise equity, in the event of any large acquisition opportunity, in order to maintain financial metrics at reasonable levels; for instance debt/EBITDA is unlikely to exceed 2 times. Besides, General Atlantic is also expected to stay invested over the medium term, and has a demonstrated track record of supporting growth of healthcare companies in India. CRISIL is also given to understand that should General Atlantic wish to exit the investment in KIMS, there is no obligation on KIMS' promoters or the company to buy-back the stake, nor has any fixed return on funds invested been assured. Weaknesses: * Revenue and geographic concentration risks: The group has high reliance on its flagship hospital in Secunderabad, which contributed 50% of the revenues and 61% of EBITDA in fiscal 2020. While contribution of Secunderabad unit has reduced in the recent years, with addition of new hospitals, the flagship hospital is likely to will continue to be the key revenue and profitability driver over the medium term exposing the group to significant revenue and geographic concentration risks. Besides, all of the company's other hospitals too are concentrated in the states of Telengana and Andhra Pradesh, which renders operations partly vulnerable to any regulations imposed by authorities in these states. Also owing to these reasons, geographical diversification is modest compared to other peers in the healthcare space. * Exposure to regulatory risk: The group, like other hospital chains, remains exposed to regulations which may come into play, as introduced. For instance, the performance of private hospitals was significantly impacted on account of price caps cardiac stents and knee implants imposed in the last quarter of fiscal 2017. Regulatory actions and their impact will remain monitorables. |
| Liquidity Strong |
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Liquidity position is healthy, with unencumbered cash balance of Rs. 75 crore as on September 15, 2020 and healthy cushion in the existing fund-based facilities. Expected cash accruals of Rs. 220-250 crore over the medium term, should be sufficient to fund routine maintenance capex as well as part of expansion capex. The group has also successfully raised long tenure debt for funding capex, which results in only modest annual debt obligations. The group pre-paid Rs. 45 crore of term debt obligations in in fiscal 2021, and had principal debt obligations of Rs. 33 crore and Rs. 43 crore respectively in fiscal 2022 and 2023, which can be comfortably serviced from internal accruals. The group is also unlikely to pay out material dividend over the medium term, and cash flows are likely to be reinvested to fund growth plans. |
| Outlook: Stable |
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CRISIL believes that KIMS group will continue to benefit over the medium term from its established presence in the South Indian market and healthy operating efficiencies. Ramp in operations at the newly acquired hospitals is expected benefit revenue growth as well as profitability in addition to reducing dependence on the flagship hospital. The group is also expected to maintain financial prudence and sustain its credit metrics at healthy levels, while pursuing organic and inorganic growth. |
| Rating Sensitivity factors |
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Upward factors * Sustained revenue growth of over 12-15% while maintaining healthy operating margin of ~18-20%, resulting in healthy cash generation. * Better than expected ramp-up at new hospitals leading to substantial reduction in dependence on the flagship hospital * Maintaining healthy credit metrics, considering expansion plans ' gearing below 0.5-0.7 time and Debt/EBITDA below 0.8-1 time on sustained basis Downward factors * Significant decline in revenues and deterioration in operating margin to below 15%, on sustained basis, affecting cash flows * Large debt funded capex or acquisition or significant elongation of working capital cycle leading to deterioration of key credit metrics - gearing above 1 time, and debt to EBITDA exceeding 2 times on sustained basis About KIMS group Founded by Dr. Bhaskar Rao Bollineni, a renowned cardiothoracic surgeon, KIMS operates a chain of multispecialty hospitals in Andhra Pradesh and Telengana, with a focus on tertiary and quaternary healthcare. It began its journey in 2004 with a 300 bed hospital in Secunderabad. Today, KIMS is one of the India's leading multi-disciplinary integrated private healthcare service providers offering comprehensive healthcare services across specialties and super specialties. The flagship hospital of the Group in Secunderabad has a capacity of 1,000 beds. Spread across eight cities in the states of Andhra Pradesh and Telangana, KIMS has a total bed capacity of 3,004 beds and an established presence in the southern part of India. Dr Bhaskar Rao, his associate firm and relatives have a 44.6% stake in KIMS, General Atlantic holds 42.6% through General Atlantic Singapore KH Pte Ltd, and the balance is held by doctors and others. In June 2018, General Atlantic invested over USD 130 million, in a combination of primary capital and secondary purchases, to acquire a significant minority stake of 42.6% in KIMS. This included the takeover of 30% stake from India Advantage Fund, India's largest private equity fund held by ICICI Ventures. 1CRISIL had suspended the rating on May 18, 2016, on account of non-cooperation with CRISIL to undertake a review of the rating. KIMS has now shared the requisite information enabling CRISIL to assign its ratings. |
| Key Financial Indicators - (Consolidated and lease adjusted) | ||||||||||||||||||||||||
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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 - 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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