Rating Rationale
January 24, 2024 | Mumbai
Chandan Healthcare Limited
'CRISIL BB-/Stable' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.20 Crore
Long Term RatingCRISIL BB-/Stable (Assigned)
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 assigned its 'CRISIL BB-/Stable' rating to the bank facilities of Chandan Healthcare Ltd (CHL).

 

The rating reflects the extensive experience of the promoter in the healthcare industry, and the moderate financial risk profile of the company. These strengths are partially offset by the working capital-intensive operations and limited track record of sustenance of operating profitability.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of CHL, Chandan Pharmacy Ltd (CPL) and Indra Diagnostic Centre & Blood Bank Ltd (IDCBBL). This is because IDCBBL is a wholly owned subsidiary of CHL and the latter holds 53% stake in CPL.

 

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 promoter: The three-decade-long experience of the promoter in the healthcare industry, their strong understanding of market dynamics and established relationships with suppliers and customers, will continue to support the business risk profile. Operating income has grown by nearly 15% in compounded terms over the three fiscals at Rs 136 crore for fiscal 2023 and healthy orders under the National Health Mission and HAL, Lucknow, CHL is likely to record an increase in revenue to over Rs 150 crore in in fiscal 2024 and further improvement over Rs 170 crore over fiscals 2025, thereby supporting revenue visibility over the medium term.

 

  • Moderate financial risk profile: Adjusted networth is expected to remain modest in the range at Rs 35 crore as on March 31, 2023 and is expected to range between Rs 40 crore and Rs 50 crore over the medium term with healthy accretion to reserves. Total outside liabilities to tangible networth ratio at 1.9 times as on March 31, 2023, and is likely to be in the range of 1.5-1.7 times in fiscal 2025 and fiscal 2026. Debt protection metrics are moderate, as reflected in interest coverage and net cash accrual to adjusted debt ratios of 3.7 times and 0.23 time, respectively, in fiscal 2023, and are expected to remain at similar level over 3.6 times as a result of healthy profitability in coming fiscals.

 

Weaknesses:

  • Working capital-intensive operations: Gross current assets (GCAs) stood at 110 days as on March 31, 2023, driven by receivables of 57 days and inventory of 28 days. GCA days are likely to range from 90 to 110 days over the medium term, as payments from government departments under the National Health Mission, are generally received within 60-90 days, thereby leading to reliance on the bank limit. Bank limit has been utilized over 85% in last the 12 months ending November 2023, with instances of over-utilization during certain months, though regularized in a timely manner. Going forward, efficient working capital management, leading to moderation in bank limit utilization, will be a key monitorable.

 

  • Limited track record of sustenance of operating profitability: Company’s operating margins have been in the range of 2.9-6.7% for past three fiscals ending fiscal 2023. Operating margins improved to over 6.7% in fiscal 2023 as a result of scaling up of new pharmacies leading to better absorption of fixed costs and sale of high margin products and is expected to improve to over 6.8% in fiscal 2024 which shall further improve to over 7% in fiscal 2025. The company is planning to add 3-4 new pharmacies each year and sustenance in operating margins shall remain a key monitorable in medium term.

Liquidity: Stretched

Bank limit utilization has averaged 85% for last 12 months ending November 2023. Net cash accruals are expected to be over Rs 6 crore in fiscal 2024 which would be sufficient to meet up the annual repayment obligations in range of Rs 4 crore, further net cash accruals are expected to be in range of Rs 7-8 crore which would be sufficient to meet up with annual repayment obligation in range of Rs 3-4 crore over medium term. Capex, majorly funded through debt leading to sizeable repayments partially constrains the liquidity and hence would remain a key monitorable.

Outlook: Stable

CRISIL Ratings believes CHL will continue to benefit from the extensive experience of its promoter in the healthcare industry and established relationships with clients.

Rating Sensitivity factors

Upward factors:

  • Efficient working capital management leading to lower reliance on bank limits and moderation in bank limit utilization in the range of 80-90%.
  • Sustained growth in operating income and improvement in operating margin leading to higher-than-expected net cash accruals

 

Downward factors:

  • Substantial and sustained increase in investments towards group companies, or larger-than-anticipated debt-funded capital expenditure, weakening the financial risk profile and liquidity
  • Sharp decline in operating margin below 5%, leading to lower-than-expected net cash accruals

About the Group

Incorporated in 2003, CHL provides diagnostic services related to radiology, pathology, cardiology, health check-ups, electromyogram, electroencephalogram, audiometry, endoscopy, pulmonary function test, allergies, auditory brainstem response, electromyography, nerve conduction velocity and bone mineral density. The company also operates pharmacies and a blood bank. Promoted by Dr Amar Singh, CHL is present in Uttar Pradesh, Delhi and Uttarakhand. CPL, incorporated in 2018, trades in medicines and owns and runs retail pharmacy units, with more than 50% stake held by CHL. IDCBBL runs a diagnostic centre Agra and Gorakhpur.

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue

Rs.Crore

136.45

119.36

Profit After Tax (PAT)

Rs.Crore

3.28

(0.45)

PAT Margin

%

2.40

(0.38)

Adjusted debt/adjusted networth

Times

0.66

0.59

Interest coverage

Times

3.76

1.49

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument
Date of
Allotment
Coupon
Rate (%)
Maturity
Date
Issue size
(Rs.Crore)
Complexity
Level
Rating assigned
with outlook
NA Cash Credit NA NA NA 5 NA CRISIL BB-/Stable
NA Long Term Loan NA NA Jul-25 3.4 NA CRISIL BB-/Stable
NA Long Term Loan NA NA Aug-27 0.96 NA CRISIL BB-/Stable
NA Long Term Loan NA NA Aug-27 0.2 NA CRISIL BB-/Stable
NA Long Term Loan NA NA Mar-27 3.08 NA CRISIL BB-/Stable
NA Long Term Loan NA NA Mar-27 0.4 NA CRISIL BB-/Stable
NA Long Term Loan NA NA Mar-27 0.83 NA CRISIL BB-/Stable
NA Long Term Loan NA NA Mar-27 0.46 NA CRISIL BB-/Stable
NA Proposed Term Loan NA NA NA 5.67 NA CRISIL BB-/Stable

Annexure - List of Entities Consolidated

Name of entities consolidated

Extent of consolidation

Rationale for consolidation

Chandan Healthcare Ltd

Fully consolidated

Indra Diagnostic Centre & Blood Bank Ltd is a wholly owned subsidiary, and CHL holds 53% stake in Chandan Pharmacy Ltd.

Chandan Pharmacy Ltd

Indra Diagnostic Centre & Blood Bank Ltd

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 20.0 CRISIL BB-/Stable   --   --   --   -- Withdrawn
Non-Fund Based Facilities ST   --   --   --   --   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 5 State Bank of India CRISIL BB-/Stable
Long Term Loan 3.4 IndusInd Bank Limited CRISIL BB-/Stable
Long Term Loan 0.96 YES Bank Limited CRISIL BB-/Stable
Long Term Loan 0.2 YES Bank Limited CRISIL BB-/Stable
Long Term Loan 3.08 State Bank of India CRISIL BB-/Stable
Long Term Loan 0.4 State Bank of India CRISIL BB-/Stable
Long Term Loan 0.83 State Bank of India CRISIL BB-/Stable
Long Term Loan 0.46 State Bank of India CRISIL BB-/Stable
Proposed Term Loan 5.67 Not Applicable CRISIL BB-/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for Consolidation

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