Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL A-/Stable’ corporate credit rating to Yatharth Hospital and Trauma Care Services Ltd (Yatharth Hospital; part of the Yatharth group).

 

The rating reflects the extensive industry experience of the promoters, the group’s established market position and its strong financial risk profile.

 

The Yatharth group’s established track record and market presence has supported the improvement in operating income at a compound annual growth rate of ~43% in the three fiscals through March 2024. The operating income is expected to improve to over Rs 800 crore in fiscal 2025 (Rs 673.25 crore previous fiscal), driven by higher occupancy level of 54% in fiscal 2024 against 45% in fiscal 2023 (despite an increase in operational beds from 935 in fiscal 2022 to 1,185 in fiscal 2024). There has been a steady increase in average revenue per occupied bed to Rs ~25,080 in fiscal 2024 (Rs ~23,000 in fiscal 2023) owing to higher number of specialised treatments as the group has introduced medical services such as radiation oncology, human organ transplant, robotics surgery and medical tourism over the years. Operating margin has remained healthy at over 27.4% in fiscal 2024 and is expected to sustain at around 25% over the medium term given the increasing scale and occupancy levels.

 

The group had raised funds of around Rs 610 crore through its initial public offering (IPO) conducted in August 2023. This has resulted in prepayment of majority of its external debt (Rs 245 crore), which has strengthened financial risk profile and liquidity.

 

The group recently announced its plans to acquire two new hospitals. It plans to acquire a 60% stake (at an investment of Rs 92.2 crore) in MGS Infotech Research and Solutions Pvt Ltd, which is currently setting up a 400-bed hospital in Faridabad, Haryana. The second acquisition is of a 200-bed super-specialty hospital, MD City, in Model Town, New Delhi, for about Rs 160 crore. Both the acquisitions are expected to take place in fiscal 2025, for which the group plans to raise funds in the near term. The hospitals are expected to commence operations in near to medium term. The group also plans to invest Rs 100 crore and Rs 80 crore, respectively, in both the hospitals for equipment and modernisation in fiscal 2026. The acquisition will help diversify geographical presence. Timely commencement and successful ramp up in operations of the new hospitals will remain monitorable over the medium term.

 

These strengths are partially offset by geographic concentration in revenue, exposure to intense competition and regulatory changes, and working capital-intensive operations.

Analytical approach

CRISIL Ratings has combined the business and financial risk profiles of Yatharth Hospital and its wholly owned subsidiaries, AKS Medical and Research Centre Pvt Ltd (AKS), RamRaja Multispecialty Hospital & Trauma Centre Pvt Ltd (RamRaja), and Pristine Infracon Pvt Ltd (PIPL).

 

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

• Extensive experience of the promoters and established market position: The two-decade-long experience of the promoters in the healthcare industry, their strong understanding of the market dynamics and healthy business relationships in the region will continue to support the business risk profile. Strong recall of the Yatharth brand with diversified reach via multiple hospitals has helped the group to sustain revenue growth over the past few fiscals. The group has been offering multispecialty primary healthcare services since 2010 and has been expanding its presence with four hospitals having capacity of 1,350 beds. The business acumen of the promoters has helped to increase consolidated operating income to Rs 673 crore in fiscal 2024 (of which Yatharth Hospital accounts for about 75%) which is expected to touch Rs 800 crore in fiscal 2025.

 

The group began operations with one hospital in Noida in 2010 and expanded its reach to Greater Noida (both in Uttar Pradesh [UP]) in 2013. Through its subsidiaries, it has further diversified its presence in Greater Noida West in 2019, Jhansi (both in UP) in 2022 and Faridabad (Haryana) in 2024. The Faridabad hospital was added after the recent acquisition of PIPL on March 28, 2024. The group also recently announced its plans to acquire two new hospitals in Faridabad and Model Town.

 

• Strong financial risk profile: The group raised around Rs 610 crore through its IPO in August 2023, proceeds from which were used to prepay majority of its external debt (Rs 245 crore), thereby improving the financial risk profile. Gearing improved to around 0.1 time as on March 31, 2024, from 1.84 times as on March 31, 2023, and is expected at a similar level for fiscal 2025. Networth also strengthened to over Rs 814.6 crore as on March 31, 2024, and is expected to improve further to over Rs 910 crore as on March 31, 2025.  The debt protection metrics were robust due to low leverage and healthy profitability: interest coverage and net cash accrual to total debt ratios are expected at around 20 times and 1.9 times, respectively, for fiscal 2025 (16 times and 1.3 times, respectively, previous fiscal). The metrics are expected to improve further over the medium term.

 

Apart from the two recently announced acquisitions, the group does have large capital expenditure (capex) plans to expand capacity at the Noida and Greater Noida hospitals at a total investment of more than Rs 250 crore. It has already acquired land at a total investment of Rs 30 crore adjacent the hospitals. The group plans to fund these acquisitions through internal accrual and surplus funds. Hence, financial risk profile should remain strong over the medium term in the absence of any external debt.

 

Weaknesses:

• Geographical concentration in revenue and exposure to intense competition and regulatory changes: Operations are largely localised in North India, against corporate hospitals that have presence across India. Four out of the five hospitals of the group that are currently operational are in Delhi NCR (3 in Noida and 1 in Faridabad). Also, the group is exposed to competition. Around 75% of the revenue is driven by the flagship hospitals in Noida and Greater Noida. The Faridabad hospital has been added after the recent acquisition of PIPL and the Jhansi hospital operationalised in fiscal 2023. Hence, ramp up in the operations of the Jhansi and Faridabad hospitals aiding geographical diversion is yet to be seen. Furthermore, 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. An increase in compliance cost or regulatory changes may adversely affect the business over the medium term.

 

• Ramp up in operations and occupancy yet to be established in new geographies: The overall occupancy level is improving, but remains moderate at ~54% in fiscal 2024 (45% previous fiscal). The lower occupancy is due to the hospitals in Greater Noida and Jhansi, which were operating at ~28% and 23%, respectively, in fiscal 2024. Furthermore, the group has added new hospitals and the track record of ramp up in their operations with healthy occupancy levels is yet to be seen. Despite the new hospitals, the consolidated occupancy level is expected to remain moderate at 55-65% in the near term. The ramp up of the newly set-up hospitals will remain a critical factor over the medium term.

 

• Working capital-intensive operations: Gross current assets were high at 217 days as on March 31, 2024 (111 days previous fiscal), owing to stretched receivables of 124 days (76 days) as majority of the clients are government entities that delay payment. Receivables of more than 6 months stood at Rs 146 crore (35% of total receivables). These are partially supported by payables of 60-90 days. Improvement in working capital cycle will remain a key rating sensitivity factor.  

Liquidity: Strong

Expected annual cash accrual of over Rs 140-200 crore will be more than adequate to meet yearly term debt obligation of Rs 7-8 crore over the medium term. The group had surplus liquid funds of over Rs 160 crore as on September 30, 2024 (Rs 144 crore as on March 31, 2024), which will cushion liquidity. The current ratio was healthy at 7.6 times as on March 31, 2024. The group also started availing of a factoring limit of Rs 50 crore from June 2024, of which Rs ~48.18 crore was utilised by September 30, 2024. The group has also been sanctioned a cash credit limit of Rs 4 crore, which remains unutilised.

Outlook: Stable

The group will continue to benefit from the extensive experience of its promoters and established relationships with clients.

Rating sensitivity factors

Upward factors

• Improvement in revenue by over 15% at group level supported by ramp up in operations in its subsidiaries, along with sustenance of operating margin at 25-26%
• Improvement in working capital cycle and track record of maintenance of surplus liquid funds

 

Downward factors

• Decline in revenue by more than 25% or operating margin falling below 20%
• Large, debt-funded capex weakening the capital structure or substantial increase in working capital requirement adversely affecting liquidity and the overall financial risk profile

About the group

Incorporated in 2008 and promoted by Dr Ajay Tyagi and Dr Kapil Tyagi, Yatharth Hospital operates hospitals in Greater Noida (operations began in 2010; 400-bed capacity) and Noida (operations began in 2013; 250-bed capacity). It is listed on the National Stock Exchange and the Bombay Stock Exchange.

 

Incorporated in 2009, AKS operates a 450-bed multi-specialty hospital in Noida Extension. The company is a wholly owned subsidiary of Yatharth Hospital. It began operations in May 2019.

 

Incorporated in 2012, RamRaja operates a 305-bed hospital in Jhansi and was acquired by Yatharth Hospital in fiscal 2022. This was acquired by the group in fiscal 2022 and operations commenced from April 2022.

 

Incorporated in 2010, PIPL operates a 200-bed hospital in Faridabad, providing comprehensive medical, surgical, ortho, neuro, dental, and obstetric care. This was acquired by the group on March 28, 2024, and operationalised in April 2024.

Any other information: Not Applicable