Detailed Rationale

Crisil Ratings has revised its outlook on the long-term bank facilities and non convertible debentures of Metropolis Healthcare Limited (MHL) to ‘Stable’ from 'Positive' while reaffirming the rating at ‘Crisil AA-’. Crisil Ratings has also reaffirmed its ‘Crisil A1+’ rating on the short-term bank facility.

 

The revision in outlook factors in lower than anticipated revenue growth and margins for fiscal 2025. Outlook revision also factors in expectation of slower than anticipated improvement in operating margins over the medium term, hindered by subdued profitability in its recently acquired entity viz. Core Diagnostics Pvt Ltd.  The reaffirmation in rating factors in sustained revenue growth and stable operating margins while maintaining robust financial risk profile on the back of strong capital structure, debt protection metrics and liquidity, which is expected to sustain over near-to-medium term. The ratings continue to reflect the leading position of MHL in the diagnostic services market in India, supported by well-established brand and healthy operating efficiency resulting in strong cash flow. The ratings also factor in the proven track record of the promoters. These strengths are partially offset by high-albeit-reducing geographical concentration in revenue profile, market fragmentation and moderate entry barriers in the diagnostics industry.

 

In fiscal 2025, MHL's revenues increased by 10% to Rs. 1,331 crore, up from Rs. 1,208 crore in the previous year. This growth was driven by a 6% rise in patient volumes and a 4% increase in average revenue per patient (RPP). Similarly, the number of tests conducted grew by 7%, while revenue per test (RPT) rose by 3%. However, operating margins declined slightly to 23.2% in fiscal 2025, compared to 23.9% in fiscal 2024, primarily due to one-time expenses of Rs. 21 crore related to acquisition costs, legal fees, and tax expenses. Excluding these exceptional costs, the adjusted operating margins would have been 24.4%, which is still lower than Crisil's initial expectation of operating margins exceeding 25-26%.

 

As part of the company’s broader vision to deepen its penetration in North & East India and to enhance capabilities in advanced fields such as oncology and molecular genomics testing, company completed a series of acquisitions between March 2025 to June 2025. During March 2025, MHL completed acquisition of Core Diagnostics Pvt Ltd (“CDPL” or “Core Diagnostics”) for a total consideration of Rs.247 crore (funded by cash of Rs.135 crore and balance via equity swap). Rationale for acquisition of Core Diagnostics was to enhance Metropolis Healthcare’s advanced cancer testing capabilities, strengthen its footprint in Northern and Eastern India and to leverage Core Diagnostics’ strong relationships with leading cancer specialists and hospitals in these regions. During fiscal 2025, while core Diagnostics reported revenue growth of 5% to Rs.116 crore, it incurred operating loss of Rs.9 crore. In first quarter of fiscal 2026, Core reported breakeven EBITDA and flattish revenue growth.  Following successful integration and the realization of operational and cost synergies, CDPL's operating margins are expected to improve to high single digits in the current fiscal year and mirror MHL's margin profile over the next 3-4 years.

 

In the first quarter of fiscal 2026, MHL also acquired Dr. Ahuja's Pathology & Imaging Centre (DAPIC) for Rs. 35 crore and Scientific Pathology for Rs. 55-83 crore, both of which were funded by cash consideration. All these acquisitions were made to deepen MHL's presence in North India and have helped increase its revenue share from the region from 8% in fiscal 2025 to over 16% in the first quarter of fiscal 2026. While DAPIC and Scientific Pathology operate on a small scale (less than Rs. 30 crore), they have a healthy margin profile of over 25%.

 

Revenues during Q1FY26 (excluding newly acquired entities/organic) increased by 13% to Rs.355 crore driven by 7% growth in patient volumes and 6% growth in RPP. On a consolidated basis, revenues grew by 23% to Rs.384 crore.  While operating margins of MHL (existing business) is expected to improve to over 25%, on a consolidated basis (including newly acquired entities), operating margins are expected to be 100-130 bps lower than expected margins of existing business. This is mainly on account of subdued operating profitability of Core Diagnostics. Ability of MHL to successfully integrate Core Diagnostics, ramp up its scale and unlock cost & operational synergies to aid margin expansion in Core will be key monitorable.  

 

Financial risk profile to remain strong with a healthy net worth of Rs 1,185 crore as of March 31, 2025, as against debt of Rs.204 crore (lease liabilities of Rs.190 crore and Rs.14 crore bank debt) thereby resulting in healthy capital structure and strong debt protection metrics. Adjusted gearing was comfortable at 0.17 times as on March 31, 2025 (March 31, 2024: 0.20 times). Over the near to medium term, gearing expected to sustain below 0.2 times. Debt protection metrics remain strong as reflected by interest coverage of 13.35 times in fiscal 2025 and is expected to increase to 15-17 times over near to medium term with expected improvement in profitability. Cash accrual projected at ~Rs 260-280 crore per annum -- along with liquid surplus should be sufficient to meet the yearly capex (including ROU asset addition) of Rs.90-100 crore over the near-to-medium term and incremental working capital requirements, if any.

 

To propel growth and expand its geographical reach, the company could consider small-to-medium-sized acquisitions. The strong balance sheet and healthy liquidity position provides flexibility to absorb modest-sized acquisitions without significantly impacting the key credit metrics. However, any large, debt-funded acquisition will be a key monitorable.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of MHL and its domestic and overseas subsidiaries (as referred in annexures) (collectively referred to as the Metropolis group), as all these entities are in the same line of business, have strong operational and financial linkages and are under a common management. The subsidiaries have been acquired over the years as part of MHL’s strategic inorganic expansion.

 

Crisil Ratings has amortised goodwill arising from mergers/consolidation over a period of 10 years, given the strong local brand of the acquired entities and expectation of returns being spread over a longer tenure.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers - Strengths 

Robust market position and strong brand and reach

The Metropolis group is among the top three diagnostic chains in India and has a large, well-established, pan-India network of about 222 pathology labs and 4,616 service centres. It is a market leader in West India and has significant presence in the South. The group has been focussing on enhancing its market position in the North and East by expanding patient service centres in these regions. In fiscal 2021, MHL initiated network expansion project to add 90 more labs and 2000 centres with enhanced focus in Tier 2 and 3 cities. By June 2025, it has already added 97 labs 2,061 patient service centres. MHL expanded its geographical footprint from 300 towns in fiscal 2023 to 750 towns in fiscal 2025. Going forward, no major lab additions are anticipated. The current objective of management is to stabilize operations of newly added labs and patient service centres.

 

Healthy operating efficiency driven by prudent working capital management

International and national laboratory accreditations, servicing customers through a hub-and-spoke model, strong quality controls and continuous process improvement through an in-house research and development (R&D) set up contribute to healthy operating efficiency. Furthermore, the working capital cycle is prudently managed, as reflected in receivables of under 45 days and minimal inventory.

 

Operating margin moderated slightly to 23.2% in fiscal 2025 (fiscal 2024: 23.9%) mainly due to one-time expenses of Rs. 21 crores, primarily related to acquisition costs, legal and tax expenses. However, excluding these expenses, the adjusted operating margin stood at 24.2%. The company's shift towards specialized and wellness testing, which commands higher realizations, has helped maintain healthy margins, although higher overhead expenses from new lab additions have partially offset this benefit. Going forward, while operating margins of existing business are expected to improve and sustain at 25-26%, overall operating margins are expected to remain 100-130 bps lower than margins of existing business.  This is owing to subdued profitability at one of the newly acquired subsidiaries viz Core Diagnostics Pvt Ltd whose profitability is expected to improve gradually post successful integration and realization of cost and operational synergies

 

Strong financial risk profile

Financial risk profile continues to be strong, with healthy adjusted networth of Rs 1,185 crore as on March 31, 2025 (Rs 975 crore a year earlier) and is expected to further improve with steady accretion to reserve. Cash accrual projected at Rs 260-280 crore per annum -- along with liquid surplus should be sufficient to meet the yearly capex (including ROU asset addition) of Rs.90-100 crore over the near-to-medium term and incremental working capital requirements, if any. Capital Structure was strong as reflected by adjusted gearing of 0.17 times as on March 31, 2025 (March 31, 2024: 0.2 times) and Total Outside Liabilities to Tangible Net Worth (TOL/TNW) of 0.43 times as on March 31, 2025 (March 31, 2024: 0.44 times). Going forward, gearing and TOL/TNW expected to sustain at comfortable levels of 0.2 times and less than 0.4 times respectively over the medium term. Debt protection metrics remain strong as reflected by interest coverage of 13.35 times in fiscal 2025 and is expected to increase to 15-17 times over near to medium term with expected improvement in profitability.  

 

Proven track record of the promoters

The founder, Dr Sushil Shah, is a pathologist with experience of over three decades. Ms Ameera Shah, his daughter, has played a key role in driving the growth of the company through a prudent mix of organic and inorganic expansion, while maintaining a strong balance sheet.

Key Rating Drivers - Weaknesses 

High, albeit reducing, revenue contribution from the B2B segment

The B2B segment has contributed to a significant share of the revenue over the last three years, resulting in a longer receivables cycle. Management has been taking steps to reduce dependence on the B2B segment, and its share in overall revenue has come down to ~44% in first quarter of fiscal 2026 from ~50% in fiscal 2023. Also, post termination of contract with NACO in February 2023, there is no revenue concentration from any single customer. Further, with strong brand recall, better test mix and improved geographical reach, share of the B2C segment is expected to further improve from the current levels of ~56% over the medium term.

 

Exposure to risks related to market fragmentation and moderate entry barriers

The diagnostics industry faces moderate entry barriers on account of average capital intensity, resulting in the emergence of numerous diagnostic centres. These diagnostic chains face intense competition from hospital-based and standalone centres, which together comprise a dominant share (about 85%) of the industry. Apart from the intense competition from standalone and hospital-based centres, competition from online players has been increasing especially in the wellness segment, wherein they have been offering tests at lower prices. However, given the strong brand and superior quality of MHL, wellness segment has been growing at a healthy rate and is currently the fastest growing segment. During fiscal 2025, the share of wellness segment for MHL increased to 17% (fiscal 2024: 14%), share of specialised testing improved to ~37% of total revenue (from 36%) while routine and semi-specialised segment contribution came down to ~46% of total revenue (from 50%) where the online players have marginal presence, thereby reducing the risk to some extent.

Liquidity: Strong

Unencumbered cash surplus was adequate at Rs 129 crore as on March 31, 2025. Cash accrual, expected at ~ Rs 260-280 crore annually which together with liquid surplus should be sufficient for Rs 90-100 crore of annual capital expenditure (including ROU asset). Further, any large, debt-funded acquisition will remain a key monitorable.

 

ESG profile

The environment, social and governance (ESG) profile of MHL supports its strong credit risk profile.

 

The healthcare sector has low environmental impact, primarily in the form of low emissions and water consumption and increasing focus on the usage of sustainable packaging. The sector has moderate social impact because of its direct bearing on the health and wellbeing of its workers and customers.

 

The company’s increasing focus on addressing ESG risks supports its ESG profile.

 

Key ESG highlights of MHL:

• The company’s ESG disclosures are in line with the guidelines framed by the Ministry of Corporate Affairs and publishes the Business Responsibility Report. The company is in the process of further strengthening the disclosures.
• The company has installed CNG Kit in 9 vehicles; approximately 2,018 litre of fuel saved and reduction in carbon footprint
• The company uses non-toxic and environmentally friendly chemicals for cleaning. Reagent/ Samples – The company processes reagent/ sample mixed water in an effluent treatment plant before disposing.
• The company has gender diversity, women constituted 43% of the total workforce in fiscal 2024.
• The governance structure of MHL is characterised by 57% independent directors, a split in the chairman and chief executive officer positions, extensive financial disclosures, presence of an investor grievance committee and a board comprising three independent directors out of seven.

 

Crisil Ratings believes that as MHLs ESG strategy evolves over the medium term, more quantitative information on relevant parameters and goals is desirable.

 

There is growing importance of ESG among investors and lenders. The company’s commitment to ESG and embedding sustainability principles across the organisation and its value chain will play a key role in enhancing stakeholder confidence and access to capital markets.

Outlook: Stable

Crisil Ratings believes the Metropolis group will, over the medium term, continue holding leading market position in the healthcare services industry, supported by its established brand name and widespread network, and will continue to showcase a strong financial risk profile backed by healthy cash accrual, which will only better with time. While the recent acquisitions done by MHL will enable it to diversify its geographical presence and aid ramping up of

Rating sensitivity factors

Upward factors

• Better than expected revenue growth thereby strengthening market position while maintaining healthy operating profitability of around 23-25% on sustained basis.
• Improvement in the revenue mix; reduction in geographic concentration and sustained increase in revenue share from the B2C segment
• Sustenance of the healthy financial risk profile

 

Downward factors

• Steep decline in revenue or operating margin falling below 20% on a sustained basis
• Large, debt-funded capex or acquisitions weakening the key debt metrics.
• Higher-than-expected dividend outflow or cash buyback or capital reduction.

About the Company

The company provides diagnostic services and operates a chain of diagnostic centres across eight countries including Sri Lanka, Ghana, UAE, Kenya, South Africa, Mauritius (overseas 16% of revenues). The company offers around 3,500 clinical laboratory tests and 530 profiles.

About the Group

MHL, the flagship company of the Metropolis group, was founded as a proprietorship entity -- Dr Sushil Shah’s Pathology Laboratory -- in 1981 by Dr Sushil Shah. It got reconstituted into a public-limited company with the current name in 2001. The company provides diagnostic services and operates a chain of centres overseas. Ms Ameera Shah is the managing director.

 

In April 2019, the company was listed. The promoters held 54.6% share of the company as on June 30, 2024, with the balance held by the public.

 

The company provides diagnostic services and operates a chain of diagnostic centres in India. It also has presence in eight other countries, including Sri Lanka, Ghana, UAE, Kenya and Mauritius (overall 16% of the revenue). The company offers more than 4,000+ clinical laboratory tests and profiles and has a network of more than 10,000+ touch points. As on June 30, 2025, it has a global reference lab in Mumbai, 12 laboratories (13 regional labs) and 4616 service centres. The reference lab is accredited by College of American Pathologists and National Accreditation Board for Testing and Calibration Laboratories.

Any other information: Not Applicable