Rating Rationale
August 23, 2019 | Mumbai
Trivitron Healthcare Private Limited
Ratings downgraded to 'CRISIL BBB/Negative/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.152 Crore
Long Term Rating CRISIL BBB/Negative (Downgraded from 'CRISIL BBB+/Negative')
Short Term Rating CRISIL A3+ (Downgraded from 'CRISIL A2')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has downgraded its ratings on the bank loan facilities of Trivitron Healthcare Private Limited (THPL; part of the Trivitron Group) to 'CRISIL BBB/Negative/CRISIL A3+' from 'CRISIL BBB+/Negative/CRISIL A2'.
 
The downgrade reflects CRISIL's expectation that Trivitron Group's operating performance will remain subdued over the medium term. The group has reported lower than expected operating margin of 6.5 per cent during fiscal 2019. The operating margin has also been lower than fiscal 2018 operating margin of about 6.9 per cent. Lower than expected operating profitability has been on account of dip in profitability in key market such as Middle East.  As a result, the group is expected to report net cash accruals of Rs. 20-27 crores per annum over the medium term, lower than previously estimated. Further, operations of the group continues to remain working capital intensive as reflected in Gross Current Asset (GCA) days of 233 days, as at March 31, 2019. GCA days has remained higher than 200 days during each of the last four financial years. Driven by high GCA days, month end bank limit utilization of THPL averages nearly 100 per cent over the 12-months period ended March 2019. CRISIL expects the credit risk profile of Trivitron Group to remain under subdued driven by large working capital requirement and modest operating profitability.
 
The ratings continues to reflect the group's diversified product portfolio, healthy relationship with suppliers, extensive industry experience of its promoter and moderate financial risk profile. These rating strengths are partially offset by the group's large working capital requirements, and susceptibility to intense competition in the healthcare industry.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of THPL with its subsidiaries, namely, Vision Medicaid Equipments Pvt Ltd, Star Trivitron FZ LLC, Dubai, Imaging Products India (Private) Limited, Kiran IMD Medical Equipment Private Limited, BOME Sanayi Urunleri Dis Ticaret AS and Labsystems Diagnostics OY. CRISIL has also proportionately combined the business and financial risk profiles of THPL's joint ventures (JVs), namely, Aloka Trivitron Medical Technologies Pvt Ltd, Biosystems Diagnostics Private Limited and Trivitron Nawakarma Medical Technologies Pvt Ltd. This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group.

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

Key Rating Drivers & Detailed Description
Strengths:
* Diversified product portfolio and healthy relationship with suppliers
The Trivitron group is engaged in manufacturing and trading of a wide range of healthcare products including ultrasound scanners, computed tomography (CT) scanners, X-ray machines, medical consumables etc. The group sources medical equipment and consumables from various partners, including Aloka Co Ltd (Japan), Brandon Medical Company Ltd (UK), and Biosystems SA (Spain) with whom the Group has long standing relationship spanning over decades. Further, the group has entered into various joint ventures with global companies such as Aloka Co. Ltd (Japan) and Biosystems SA (Spain).

* Extensive industry experience of promoter
The group's business risk profile continues to benefit from the extensive industry experience of its promoter Dr. G S K Velu, who has been engaged in the healthcare industry for almost 2 decades. Apart from the Trivitron group, he is also associated with other prominent organizations in the healthcare sector such as Apollo Dialysis Pvt Ltd, Maxivision Laboratories Pvt Ltd, Alliance Dental Care Ltd, Kauvery Group of Hospitals etc.

* Moderate financial risk profile
Trivitron Group has moderate financial risk profile as reflected in its net worth of more than Rs. 150 crores and gearing of less than 0.7 times, as at March 31, 2019. Driven by limited debt level in capital structure, the group is expected to report moderate interest coverage ratio of more than 3 times and Net Cash Accruals to Total Debt (NCATD) ratio of more than 0.2 times over the medium term.
 
Weakness:
* Large working capital requirements
The group's operations are highly working capital intensive, as indicated by GCA days of 233 days as at March 31, 2019. High GCA days is mainly on account of high inventory and receivables of around 3 months each. Receivables remain high on account of higher credit period allowed to government-owned entities. Further, working capital requirement remains high also on account of substantial advances payable towards tenders and cash and bank balance to be maintained as margin money the non-fund based limits. As a result of large working capital requirements, the group's working capital limits remain fully utilized.
 
* Exposure to risks related to intense competition in healthcare industry 
The Trivitron group is predominantly engaged in manufacturing and trading in imported medical equipment, devices, and consumables. The domestic medical equipment market is dominated by players such as GE Healthcare (a division of General Electric Company USA), Philips Healthcare (a division of Koninklijke Philips Electronics NV), and Siemens Healthcare (a division of Siemens AG); these companies account for a considerable portion of the market. The Trivitron group does not supply any products manufactured by these players and, hence, operates in a relatively small market. Moreover, these players are very competitive and have aggressive pricing policies, resulting in reduced market share for other players. The group's revenues will be impacted by any reduction in the market share of its suppliers because of competition or by discontinuation of tie-ups with its suppliers. CRISIL believes that the Trivitron group's revenues and margins will remain susceptible to intense competition in the medical equipment business.
Liquidity

Trivitron Group has moderate liquidity. The operations of the group is working capital intensive which results in the fund based lines of THPL being used at an average of nearly 100 per cent during month ends over the 12-month period ended March 2019. However, Trivitron Group's liquidity is supported by the high unencumbered cash and bank balances, mutual funds of more than Rs.50 Crore as on March 31, 2019. Current ratio remains healthy at about 1.4 times, as at March 31, 2019.

Outlook: Negative

CRISIL believes that Trivitron Group's credit risk profile will remain constrained over the medium term driven by its modest operating profitability and large working capital requirement. 
 
The ratings may be downgraded in the event of the group reporting lower than expected cash accruals or larger than expected working capital requirement or debt funded capex resulting in further pressure on its credit risk profile. Conversely, the outlook may be revised to 'Stable' in the event of the group reporting significantly better than expected cash accruals driven by sharp improvement in operating margin along with efficient working capital  and liquidity management.

About the Group

Promoted by Dr. G S K Velu, the Chennai-based Trivitron group trades in and manufactures medical equipment, medical devices, and medical consumables. THPL, incorporated in 1998, is the group's flagship company. The Trivitron group has also floated several JVs with leading global medical equipment manufacturers and healthcare service providers.

Key Financial Indicators
Particulars Unit 2019* 2018
Revenue Rs crore 408.35 353.12
Profit after tax (PAT) Rs crore (11.91) 18.23
PAT margin % (2.9) 5.2
Adjusted debt/adjusted networth Times 0.64 0.64
Interest coverage Times 2.30 2.05
*Provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs Cr) Rating Assigned with Outlook
NA Cash Credit NA NA NA 65 CRISIL BBB/Negative
NA Letter of Credit NA NA NA 30 CRISIL A3+
NA Proposed Long Term Bank Loan Facility NA NA NA 22 CRISIL BBB/Negative
NA Standby Letter of Credit NA NA NA 15 CRISIL BBB/Negative
NA Term Loan NA NA Mar-2021 20 CRISIL BBB/Negative

Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Trivitron Healthcare Private Limited Full This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group
Vision Medicaid Equipments Pvt Ltd Full This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group
Star Trivitron FZ LLC, Dubai Full This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group
Imaging Products India (Private) Limited Full This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group
Kiran IMD Medical Equipment Private Limited Full This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group
BOME Sanayi Urunleri Dis Ticaret AS Full This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group
Labsystems Diagnostics OY Full This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group
Aloka Trivitron Medical Technologies Pvt Ltd 40% This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group
Biosystems Diagnostics Private Limited 50% This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group
Trivitron Nawakarma Medical Technologies Pvt Ltd 50% This is because these entities are in the same lines of business, under a common management, and have financial linkages. All these companies are collectively referred to herein as the Trivitron group
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  107.00  CRISIL BBB/Negative      03-07-18  CRISIL BBB+/Negative  07-04-17  CRISIL BBB+/Stable  29-06-16  CRISIL BBB+/Stable  CRISIL BBB+/Stable 
                    18-05-16  CRISIL BBB+/Stable   
Non Fund-based Bank Facilities  LT/ST  45.00  CRISIL BBB/Negative/ CRISIL A3+      03-07-18  CRISIL BBB+/Negative/ CRISIL A2  07-04-17  CRISIL BBB+/Stable/ CRISIL A2  29-06-16  CRISIL BBB+/Stable/ CRISIL A2  CRISIL A2 
                    18-05-16  CRISIL A2   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 65 CRISIL BBB/Negative Cash Credit 65 CRISIL BBB+/Negative
Letter of Credit 30 CRISIL A3+ Letter of Credit 30 CRISIL A2
Proposed Long Term Bank Loan Facility 22 CRISIL BBB/Negative Proposed Long Term Bank Loan Facility 22 CRISIL BBB+/Negative
Standby Letter of Credit 15 CRISIL BBB/Negative Standby Letter of Credit 15 CRISIL BBB+/Negative
Term Loan 20 CRISIL BBB/Negative Term Loan 20 CRISIL BBB+/Negative
Total 152 -- Total 152 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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