Detailed Rationale

Crisil Ratings has upgraded its ratings on the bank loan facilities of Regency Hospital Ltd (RHL) to ‘Crisil A-/Stable/Crisil A2+’ from ‘Crisil BBB+/Positive/Crisil A2’.

 

The upgrade reflects sustained improvement in the credit profile of the company over the medium term. The company’s business risk profile has improved, driven by increasing revenue and operating margin. The company’s revenue increased to Rs 539 crore in fiscal 2025 from Rs 478 crore in fiscal 2024 owing to sustenance of improved occupancy at 69%. In fiscal 2026, RHL is expected to witness a healthy growth in revenue aided by the commercialisation of its new Kanpur Tower (Tower-III) with capacity of 305 beds along with new hospital in Gorakhpur with bed capacity of 250. The company further plans to add a third hospital over the next 2-3 years in Varanasi, which will further support the company’s revenue growth and business risk profile. The growth in revenue is further aided by the ARPOB (Average Revenue Per Occupied Bed) of the hospital that has been consistently increasing owing to rise in the number of surgeries and in-patients.

 

The operating margin has remained stable at 18-20% in the two fiscals through 2025. With additional capital expenditure (capex), diversification of locations and resultant operating efficiency, the company is likely to witness growth in revenue backed by improved occupancy, along with sustenance of improved operating margin. The operating margin is expected to remain comfortable at 17-18% over the medium term, driven by consistent improvement in occupancy and increasing scale. This will remain a key rating sensitivity amid the timely completion of ongoing capex and stabilisation of operations in the new hospitals.

 

The financial risk profile has remained comfortable with estimated adjusted networth of over Rs 400 crore and gearing of 0.85 time as on March 31, 2025 (Rs 370 crore as on March 31, 2024). The improvement in networth is on account of healthy profitability along with capital infusion of Rs 150 crore by private equity investor, Norwest Capital LLC, in fiscal 2024 along with sustained profit margin.

 

The ratings reflect the company’s established position as a healthcare provider and its healthy financial risk profile. These strengths are partially offset by risks related to timely commencement of operations at the new hospitals and regulations, and high geographical concentration in revenue.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of RHL.

Key Rating Drivers & Detailed Description

Strengths:

• Established position as a healthcare provider: RHL is an established healthcare provider with a track record of over 30 years in Kanpur. The flagship multi-specialty hospital at Sarvodaya Nagar (including Tower 1 and Tower 2) has 248 overnight beds with occupancy of around 84% in fiscal 2025. RHL enjoys strong brand equity in Kanpur and adjoining areas, as it is the only tertiary care provider in the region. RHL has total capacity of 434 overnight beds, which were occupied to around 69% in fiscal 2025. Benefitting from healthy brand equity, the company has grown at compound annual growth rate of 14% in the four fiscals through 2025. The Gorakhpur-based 250-bedded facility is expected to be operationalised by May 2025, along with the 305-bedded facility (Tower 3) in Kanpur, which is likely to be operationalised by August 2025. The additional capacity is expected to support growth in the scale of operations. With total capacity of 989 beds, the company is likely to generate revenue of Rs 680-690 crore in fiscal 2026, supported by healthy occupancy. As operations of new hospitals stabilise, further increase in occupancy will drive growth in scale of operations. The company plans to operationalise the Varanasi hospital with a capacity of around 300 beds post fiscal 2028, which further provides healthy growth visibility over the long term. 

 

• Healthy financial risk profile: The financial risk profile is supported by estimated networth of Rs 402.14 crore and gearing of 0.85 time as on March 31, 2025. In November 2023, Norwest Capital LLC had invested Rs 445.21 crore in RHL, of which Rs 295.21 crore was paid for purchasing the stake of outgoing investors (Kois, IFC and Healthquad holding total of 31%) and Rs 150 crore was further invested in the company. The funds infused by Norwest Capital LLC have been utilised to fund the capex undertaken by the company to establish two facilities in fiscal 2026 in Gorakhpur and Kanpur. The company undertook capex of over Rs 330 crore in fiscals 2024 and 2025 and likely to undertake around Rs 470 crore over the next three fiscals for regular maintenance, operationalising and setting up of three hospitals — one tower in main hospital called as Tower 3 in Kanpur, one in Gorakhpur and one in Varanasi. The capex will be funded through debt and internal accrual. The company is expected to issue additional debt of Rs 256.89 crore to undertake the capex. Despite debt-funded capex, the financial risk profile is likely to remain comfortable supported by improvement in scale of operations through operationalisation of new hospitals and healthy operating profitability, leading to high accretion of reserve.

 

Weaknesses:

• Risks related to timely commercialisation of new hospitals along with healthy occupancy: RHL has undertaken greenfield expansion projects to open two units in the next one year in Uttar Pradesh. While the 250-bedded Gorakhpur facility is expected to be operationalised in May 2025, the Kanpur-based 305-bedded Tower 3 facility is likely to be operationalised by August 2025. The company is in process to establish another 300-bedded facility in Varanasi by fiscal 2028. Crisil Ratings will continue to monitor the occupancy in the new hospitals, which is expected to commercialised by August 2025, along with progress of the new projects and their timely completion, as well as any cost overrun in capex and its impact on the company’s capital structure and debt protection metrics.

 

• Geographical concentration in revenue and regulatory risk: The majority of the healthcare facilities of RHL are in Kanpur. Though these hospitals cater to patients from adjoining areas in Uttar Pradesh, dependence on local patients remains high. Although the company started a super-specialty hospital in Lucknow in April 2020 and is planning to open two hospitals — one in Gorakhpur and one in Varanasi — the majority of its revenue currently comes from the Kanpur units. Absence of any large national players in these Tier 2 and 3 markets supports the market position of the company. However, the healthcare industry is susceptible to government guidelines related to medical practices such as disposal of solid waste and timely renewal of approvals, licences and permits. Any increase in the compliance cost or regulatory changes could affect the business and financial operations. Entry of any large national hospital chain in the market is also expected to disrupt the healthy occupancy of hospitals under Regency. Moreover, the ability to offer new medical services with advanced technologies will be a key factor for improved performance.

Liquidity: Adequate

Bank limit utilisation was moderate at 45.01% on average for the 12 months ended March 31, 2025. Annual cash accrual is expected at Rs 80-95 crore against yearly term debt obligation of Rs 29-40  crore over the medium term and will cushion liquidity.

The current ratio was healthy at 1.77 times as on March 31, 2024. The promoters are likely to extend support in the form of equity and unsecured loans to meet the working capital requirement and debt obligation.

 

Liquid investments were around Rs138 crore in shares, debentures and mutual funds as on March 31, 2024. Low gearing and moderate networth support financial flexibility and provide cushion in case of adverse conditions or downturn in the business.

Outlook: Stable

Crisil Ratings believes RHL’s business risk profile will continue to be supported by the established position of its various hospitals.

Rating sensitivity factors

Upward factors:

• Sustained growth in revenue and operating margin to above 16%, leading to higher-than-expected net cash accrual
• Stabilisation of operation in all the hospitals, leading to positive operating profitability for each hospital
• Sustenance of healthy financial risk profile and liquid

 

Downward factors:

• Steep decline in revenue or profitability, resulting in cash accrual below Rs 45 crore
• Any cost-overrun in the planned capex, impacting the financial risk profile

About the Company

RHL was incorporated in 1987 by Dr Atul Kapoor and his wife, Dr Rashmi Kapoor. The company has multiple healthcare centres and hospitals in Kanpur and Lucknow. It has eight operation theatres at its multi-specialty hospital in Sarvodaya Nagar in Kanpur (including Tower 1 and Tower 2), two at its renal scinces centre in Swaroop Nagar in Kanpur and two at the South Kanpur Hospital. RHL also operates a city clinic in Parade in Kanpur. Its super-speciality hospital in Lucknow started operations in April 2020.

Status of non cooperation with previous CRA
RHL has not cooperated with India Ratings which has classified it as issuer not cooperative vide its release dated May 09, 2017. The reason provided by India Ratings is non-furnishing of information for ratings.

Any other information: Not applicable