| Apollo Hospitals International Limited | ||||||
| Ratings Reaffirmed and Withdrawn | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the bank facilities of Apollo Hospitals International Limited and subsequently withdrawn the rating at the company's request and on receipt of a no-objection certificate from the bankers. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of bank loan ratings.
Revenue of the company grew 39% in fiscal 2022 driven by pent up demand for healthcare services and covid vaccinations after a subdued fiscal 2021 impacted by COVID19. The strong growth was also driven by strong recovery in businesses of subsidiary Apollo CVHF, where revenue grew by ~60% YoY in fiscal 2022. In the nine month period ended December 31, 2023, revenues have remained stable at Rs.183 crore despite slight moderation in demand. Growth is expected to remain flat in the current fiscal in absence of any COVID-19 revenues, and witness modest growth over the medium term. Operating profit margin improved to 18% in fiscal 2022 from 16.8% in fiscal 2021. Profitability was driven by higher number of surgeries performed and COVID vaccination profitability. Operating margin is expected to sustain at 16.3%-16.5% in the near to medium term with ARPOB expected to grow to ~Rs 55,000 from ~Rs 52,000 in fiscal 2022; moderation is due to lower profitability of subsidiaries. Financial risk profile remained healthy with strong cash generation from business and no major debt addition during fiscal 2022. Gearing (debt excluding lease liability) improved to 0.31x in fiscal 2022 and expected to remain below 0.25x in the near to medium term. Interest coverage ratio improved to 6x in fiscal 2022 and expected to remain healthy at more than 4x in the near to medium term.
The ratings reflect strong operational, managerial and financial support from the parent, Apollo Hospitals Enterprise Ltd (AHEL; 'CRISILAA+/Stable/CRISIL A1+'). The ratings also reflect the company’s established business presence and adequate financial risk profile. These strengths are partially offset by modest occupancy, geographic concentration in revenue and exposure to regulatory risks. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of AHIL and its subsidiary, Apollo CVHF, as the latter is majority held by AHIL. Also, CRISIL Ratings has moderately consolidated the joint venture (JV), Apollo Amrish Oncology Services Pvt Ltd, as it is controlled by AHIL as well as its partner.
CRISIL Ratings has also applied its parent notch-up framework to factor in the extent of distress support available from AHEL.
Furthermore, Rs 11 crore redeemable preference shares from the promoters have been treated as neither debt nor equity because the shares have long tenure (with residual maturity of 10 years) and are cumulative.
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: Strong operational, managerial and financial support from the promoters, especially AHEL AHIL is treated as a subsidiary of AHEL although it is a 50:50 JV with Cadila; AHEL has control over strategic and operational decisions of the company and strong oversight over its financial matters. AHIL benefits from the Apollo brand and the patient referrals from AHEL’s centres. The promoters of AHIL 'AHEL and Cadila’ have regularly infused equity and unsecured loans to fund cash losses and capex. Need-based support from the promoters aids financial flexibility, and is likely to continue over the medium term. Additionally, AHEL’s strong articulation of support to AHIL to meet all debt obligations supports the ratings. Revenue grew 39% in fiscal 2022 driven b pent up demand for health care services and COVID-19 vaccination revenues. Occupancy improved to above 50% and expected to remain above 45%-50% in the near to medium term as demand remains strong. ARPOB improved to ~Rs 51,000 from Rs 44,000 in fiscal 2021. In the current fiscal 2023, despite absence of any COVID vaccination revenue and slight moderation in demand, AHIL is expected to achieve fiscal 2022 revenues and expected to grow 5%-10% in the medium term as demand for health care services from reputed hospitals expected to remain strong. Also ARPOB expected to improve to ~Rs 54,000 as hospitals employs latest technology like robotic surgeries to increase the number of surgeries performed and reduce average length of stay (ALOS). Operating margin which improved to 18% in fiscal 2022 on the back of increased ARPOB is expected to sustain above 16.5% in the near to medium term with further improvement in ARPOB due to increased number of surgeries and reducing ALOS. Modest performance of subsidiaries will also lead to slight dip in profitability.
Adequate financial risk profile In the absence of any major capex, AHIL has been utilising its cash accrual to meet debt obligation, reduce working capital borrowing and shore up liquidity, resulting in decline in total debt (excluding lease debt) to Rs 39 crore in fiscal 2022 from ~Rs 44 crore in fiscal 2021. Hence, gearing (excluding lease debt) improved to 0.4 time compared with 0.6 time as on March 31, 2021. Supported by higher cash accrual, gearing expected to remain below 0.25 time in the near to medium term as the company has no plan for raising additional debt in the near to medium term for their capex plans. Debt protection metrics such as interest cover and gearing are expected to remain at adequate levels.
Weaknesses: Geographic concentration in revenue Although AHIL attracts patients from various cities and countries, its ability to tap potential customers is constrained by its single-location operations. Furthermore, the hospital is on the outskirts of Ahmedabad. Thus, despite being operational for over 10 years, standalone occupancy has remained 60-65% over the years, excluding fiscal 2021 when occupancy declined to 41% owing to the Covid-19 pandemic. The pandemic had reduced the flow of overseas patients, which has improved gradually in fiscal 2022 and expected to improve further in the near to medium term. The hospital faces competition from other large hospitals in Ahmedabad. Moreover, the image-sensitive nature of the healthcare industry aggravates the risk of revenue concentration.
Exposure to regulatory risks AHIL remains vulnerable to regulatory risks faced by the healthcare industry. Government policy on capping of prices for medical procedures and devices, such as cardiac stents and knee implants, impacted revenue and profitability of players such as AHIL in fiscals 2017 and 2018. |
Liquidity: Adequate Cash and bank balance was ~Rs 60 crore as on December 31, 2022. Fund-based limit of Rs 10 crore was unutilized. Expected net cash accrual of ~Rs 30 crore during fiscals 2023 to 2025 will sufficiently cover annual debt obligation of Rs 5 crore and upto Rs 20 crore of annual capex. Additionally, need-based support from the promoters having strong liquidity, is expected to continue, for AHIL which further enhances financial flexibility of the company. |
Outlook: Stable CRISIL Ratings believes AHIL will continue to benefit from the critical nature of its specialty services, the management’s initiatives to control fixed cost, and continued operational, financial and managerial support from AHEL. Furthermore, steady cash accruals and limited planned capex should support sustenance of adequate debt metrics over the medium term. |
Rating Sensitivity factors Upward factors: * Increase in revenue driven by higher occupancy, and operating margin sustaining of over 20% * Healthy cash accrual because of higher-than-expected profitability, resulting in improved capital structure and debt protection metrics * Increase in stake by AHEL, making it a majority stakeholder
Downward factors: * Significant weakening in the operating performance of AHIL with lower-than-expected operating profitability (below 12-13%), also impacting cash generation * Material debt addition due to sizeble capex, impacting debt metrics * Moderation in credit rating of AHEL or change in stance of support to AHIL |
About the Company Incorporated in 1997, AHIL is an equal JV between AHEL and Cadila. The company operates a 302-bed multispecialty hospital in Ahmedabad. It is a tertiary care hospital with focus on cardiac surgery, neurosurgery, orthopaedics, oncology and solid organ transplants.
In fiscal 2015, AHIL formed an equal JV with Amrish Oncology Services Pvt Ltd (owned by Dr Ravi Patel, an American citizen of Indian origin and owner of the brand, Comprehensive Blood & Cancer Care Center), named Apollo Amrish Oncology Services Pvt Ltd, specialising in oncology. Of the 359 beds at AHIL’s hospital, 35 are dedicated to the JV.
In fiscal 2017, AHIL formed a JV, Apollo CVHF, with Advanced Cardio Vascular Care Ltd (owned by Dr Sameer Dani, a leading cardiologist in Ahmedabad). The JV manages the recently commissioned (January 2019) 57-bed exclusive cardiac centre in Ahmedabad. AHIL holds 66.7% in Apollo CVHF. |
Key Financial Indicators(consolidated)
*As per new accounting standards of IndAS 116 |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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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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Criteria Details
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