| Yashoda Healthcare Services Private Limited | ||||
| 'CRISIL AA-/Stable' 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 CRISIL Ratings has assigned its 'CRISIL AA-/Stable' rating to the bank facilities of Yashoda Healthcare Services Private Limited (YHSPL).
The rating reflects YSHPL group’s established market position in Hyderabad through its 3 hospitals under the ‘Yashoda’ brand, strong infrastructure across different specialities, ability to attract and retain renowned doctors resulting in stable occupancy rates & healthy Average Revenue per Bed per Day (ARPOBD) and sound operational efficiencies leading to healthy profitability. Business risk profile also benefits from the diversification provided by the Group’s entry into pharma business through its subsidiary Graviti Pharmaceuticals Private Limited (Graviti) which is engaged in the manufacture of Solid Dosage Formulations primarily for the US market. The ratings also factor in the over 30 years’ experience of the promoters in the healthcare space where they have built up a strong reputation. The ratings are also supported by the company’s healthy financial risk profile by virtue of strong operating performance, healthy cash generation and net cash balance sheet.
These strengths are partially offset by high geographical concentration risk due to its presence in only Hyderabad and regulatory risks associated with the hospital sector. The ratings are also constrained by large projects being implemented in YHSPL and its subsidiary Anthea Pharma Private Limited (Anthea), timely commissioning and successful ramp up of which will be key monitorables. YHSPL is in the process of setting up a greenfield 1000 bed hospital in the Hitec city area of Hyderabad at a cost of ~Rs 800 crore while Anthea is in the process of setting up a sterile injectable plant at ~Rs 900 crore. The hospital is expected to be commissioned by first half of fiscal 2023.
Supported by its strong market position and organic bed additions, revenue registered a healthy CAGR of over 18% through fiscals 2015-21. Revenue growth was also backed by improvement across in-patient and out-patient volumes as well as ARPODB indicating company’s strengthening market position and improvement in services provided. Amidst the Covid-19 pandemic, the group’s specialization in some key departments like pulmonology ensured above average patient intake and per patient billing which in tune drove revenue and profitability in current and previous fiscal. In the current fiscal, revenues are expected to register double digit growth while operating margins are expected to be high at over 35% as Covid related admissions boosted profitability. However, operating profitability is expected to temper over the next 1-2 years as situation normalizes and with the commissioning of the new hospital which is expected to make losses in near term due to high preoperative costs. However, post stabilization of the hospital, operating margins are expected to reach pre COVID levels of ~30%.
The group has followed a strategy of concentrating on a single location (Hyderabad) which has enabled them to maintain tight control over their cost structure. Centralized procurement, marketing and efficient management of overheads while maintaining growth has ensure healthy operating efficiency as reflected in operating margins of over 30%.
Financial risk profile is strong marked by an estimated networth of ~Rs 2000 crore by FY22 end and a net cash balance sheet. With the company executing large projects (total value estimated at ~Rs 1700 crore to be funded through accruals of ~Rs 600 crore and debt of ~Rs 1100 crore), debt is expected to increase over the medium term. However, the projects are being implemented in a phased manner and debt which is already tied down is expected to be availed in a phased manner. Moreover, these are long tenor loans with a ballooning repayment structure allowing stabilization of operations. Given the strong accrual generation and phased out capex outlay, CRISIL does not expect peak debt to be in excess of Rs 800-850 crore. Moreover, company has liquid surplus to the tune of ~Rs 1200 crore (as of December 31, 2021) invested in listed equity, mutual funds and bank balances which gives considerable financial flexibility and ability to meet any cash flow mismatches, cost overruns etc. The healthy operating performance is also expected to generate accruals in excess of Rs 300 crore over the medium term which can comfortably support repayment obligations of ~Rs 50 crore and Rs 80 crore respectively in fiscals 2023 and 2024 respectively and take care of incremental working capital requirements if any. Therefore, while gearing and debt protection metrics like debt to EBIDTA are expected to moderate, same are expected to remain comfortable at under 0.5 time and 2 time respectively over the medium term. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has fully consolidated the business and financial risk profiles of YSHPL and its subsidiaries Graviti and Anthea, which are strategically important to, and have a significant degree of financial integration with YHSPL. These companies are together referred to as YSHPL group.
YHPSL has also guaranteed debt in Graviti and Anthea and is expected to support these entities as and when required.
The promoters also run another hospital in Hyderabad (Yashoda Super Specialty Hospital) which is run under a partnership firm and is separate from YSHPL. CRISIL Ratings has not consolidated this entity as it is managed independently and has no financial linkages with YSHPL.
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:
YHSPL is an established player in the Hyderabad region, operating 2 large multi specialty hospitals with ~1500 beds. The company has a long operational track record of ~30 years in the area of tertiary and quaternary healthcare. This has enabled the company to build a strong brand ‘Yashoda Hospitals’ attracting patients from multiple locations. The hospitals are also well diversified with no single specialty accounting for more than 25% of revenues in fiscal 2021. Moreover, the hospitals have a premier pulmonology set up which supported healthy patient inflow and high per patient revenues even during pandemic times. The hospitals have also started marketing remunerative treatments like liver transplant programs which are expected to generate healthy revenues going ahead.
With the commissioning of their new hospital, the bed count is expected to gradually increase to ~2500 over next 2 fiscals which will make them one of the largest hospital operators in the region.
The group has reported above average operating profitability of over 30% despite constant capacity addition and diversifying into the pharma space. The strategy of sticking to one location and building a strong brand has enabled the company to report high profitability. The Group prefers to manage most expenses in-house, including sourcing personnel from promoter-owned training and nursing schools. Centralized procurement of pharmaceuticals and diagnostic lab requirements, regular medical camps in underserved areas, common marketing teams have all ensured gradual improvement in operating efficiencies. This coupled with healthy occupancy levels and improvement in key metrics like ARPOBD and revenue per patient has ensured steady improvement in operating margins to over 30% since fiscal 2020 compared to ~22% in FY15. The strong operating performance has also resulted in healthy return on capital employed (RoCE), which stood at ~30% in fiscal 2021, As the newly acquired hospitals ramp up, margins and returns are expected to moderate marginally and then subsequently improve.
Financial risk profile is strong as reflected in sizeable net worth of almost Rs 2000 crore estimated as of FY22 end, net cash balance sheet and comfortable debt protection metrics. The group has a demonstrated track record of maintaining prudence in its expansion plans as indicated by its historically low debt. While debt is expected to increase over the medium term with large projects under execution, CRISIL Ratings does not expect peak debt to exceed Rs 800-850 crore over the medium term and also expects YHSPL to maintain a net cash balance sheet. Moreover, the debt has a ballooning repayment structure allowing for cash flows to stabilize before peak repayment starts. Consequently, gearing is expected to remain under 0.5 time in fiscal 2023 (0.15 time in fiscal 2021) while peak debt to ebidta is not expected to exceed 2 time (0.62 time in fiscal 2021) over the medium term.
The business was started by 3 brothers (Mr Ravender Rao, Dr Surender Rao and Mr Devender Rao) over 3 decades ago as a 50 bed clinic in Hyderabad. Since then the promoters have slowly built up the brand organically through prudent bed addition and focus on running operationally efficient hospitals. The second generation too has now joined the business, spearheading the move to the pharma segment. This experience of building up a recognized brand and running multiple large hospitals is expected to help the group in scaling up the new hospital as well as the pharma business.
Weaknesses:
100% of revenue and profits of the hospitals segment comes from the Hyderabad area which exposes them to geographical concentration risk. Moreover, the pharma division is also highly dependent on the US markets for revenues. With Hitec city hospital set to be commissioned, dependence on existing 2 hospitals will decrease, though concentration risk from Hyderabad will sustain. Nonetheless, the Group has been able to continuously improve brand presence in the area as also exhibited by steady increase in revenue and improvement in profitability.
The group, like other hospital chains, remains exposed to regulatory risk. For instance, the performance of private hospitals was significantly impacted on account of price caps on cardiac stents and knee implants imposed in the last quarter of fiscal 2017. Similarly, some hospitals were impacted by strict bed rationing rules introduced during first and second wave of the pandemic. While YSHPL has not been adversely impacted by these regulations, regulatory actions and their impact will remain monitorables. On the Pharma front also, high dependence on the highly regulated US markets exposes them to constant scrutiny and audits.
YHSPL is executing large greenfield projects on a standalone basis and also in its subsidiary, Anthea. While the hospital project in YHSPL is a 1000 bed project being built in Hitec City, Hyderabad, Anthea Pharma is setting up an injectables plant at an estimated cost of ~Rs 900 crore. The Hitec City project is expected to be commissioned in first half of next fiscal with approximately 300 beds and gradually ramp up to 1000 beds over the next 2 fiscals. Given the high initial costs, the hospital is expected to make losses in the medium term. The project in Anthea is also expected to be commissioned by fiscal 2026 only and will target export markets mostly. Given that the Group already has experience in executing and operationalizing similar projects (Graviti) and also has marketing and selling channels in its target markets, CRISIL Ratings expects the Group to commission and ramp up the production in a timely manner. Ramp up of these projects would also aid business diversity. Nevertheless, these will entail project risk and any cost overruns or delay in commissioning will be key monitorables. |
Liquidity: Strong Liquidity position is healthy, with cash balances of ~ 162 crore as on December 31, 2021 apart from investments in equity and mutual funds of ~Rs 1055 crore. YHSPL has no working capital limits (on a standalone basis) due to negative working capital cycle and healthy liquidity available. Annual accruals of over Rs 300 crore will be sufficient to meet repayment obligations of ~Rs 50 crore and ~Rs 80 crore respectively over fiscals 2023 and 2024 respectively apart from meeting requirements of capex. Debt for the projects has already been tied up and can be drawn as and when required. Moreover, given the healthy cash balances and investments readily available, Group has sufficient cushion to meet any exigencies. 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 CRISIL Ratings believes that YSHPL group will continue to benefit over the medium term from its established presence in the Hyderabad market and healthy operating efficiencies. Timely ramp in operations at the new hospital is critical for ensuring revenue growth as well as sustain profitability. The group is also expected to maintain financial prudence and sustain its credit metrics at healthy levels, while pursuing growth. |
Rating Sensitivity factors Upward Factors:
Downward Factors:
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About YSHPL Group Founded by 3 brothers, Mr Ravender Rao, Dr Surender Rao and Mr Devender Rao, Yashoda Healthcare Services Private Limited (YSHPL) operates 2 multispecialty hospitals in Hyderabad, Telengana, with a focus on tertiary and quaternary healthcare. The promoters also operate another 400 bed hospital in Hyderabad which is under a partnership firm. It began its journey in 1993 with a 50 bed hospital in Malakpet. Today, YSHPL is one of the state’s leading multi-disciplinary integrated private healthcare service providers operating over 1500 beds and offering comprehensive healthcare services across specialties and super specialties. The Group also has interests in pharma trading and distribution apart from manufacturing of Oral solid dosages targeted at the US markets in Graviti. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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Annexure – List of entities consolidated-YHSPL
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||
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This Annexure has been updated on 20-Apr-2022 in line with the lender-wise facility details as on 18-Apr-2022 received from the rated entity.
Criteria Details
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