Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA-/Positive/Crisil A1+’ ratings on the bank facilities of Global Health Ltd (GHL). The bank facilities rated by Crisil Ratings in the wholly owned subsidiary of GHL, Medanta Holdings Pvt Ltd (MHPL) has been novated to GHL following completion of the amalgamation of MHPL with GHL.

 

Revenue reported 12% on-year growth in the first nine months of fiscal 2025, driven by increase in inpatient volumes owing to bed expansion, improvement in average revenue per occupied bed (ARPOB) and sustenance of occupancy levels on year-on-year basis. Better performance of the flagship hospital offsets the moderation in performance of the Lucknow (Uttar Pradesh) hospital due to increasing competitive intensity and seasonal factors. Occupancy remained stable at around 62.3% for the first nine months of fiscal 2025. Operating profitability moderated by 50 basis points (bps) to 24.1% in the first nine months of fiscal 2025 due to decline in operating profitability in the Lucknow hospital while the Patna (Bihar) and Gurugram (Haryana) hospitals registered stable profitability.

 

At a consolidated level, GHL’s revenue may grow 10-12% in fiscal 2025, supported by bed additions, sustenance of occupancy levels at overall level and improvement in ARPOB due to change in case mix. Operating profitability is expected to sustain at 22-24% despite the moderation expected in the Lucknow hospital due to better profitability in other hospitals, although pre-operative expenses towards bed additions at existing hospitals and commencement of the hospital at Noida (Uttar Pradesh) expected towards the end of fiscal 2025 might partly constrain profitability.

 

Overall improvement in GHL’s operating performance during fiscal 2024 was driven by the flagship hospital, Medanta Medicity, at Gurugram (housed in GHL) and faster-than-expected ramp-up of operations in the Lucknow hospital (housed in MHPL) and the Patna hospital (housed in Global Health Patliputra Pvt Ltd [GHPPL; ‘Crisil A+/Positive’]). Improvement in the financial risk profile was driven by healthy cash generation and earlier from proceeds from initial public offering (IPO), which were used to prepay of external debt at MHPL and GHPPL. The financial risk profile is expected to remain healthy, even as GHL pursues partly debt-funded expansion over the medium term.

 

On consolidated basis, revenue grew 21% to Rs 3,278 crore in fiscal 2024 (from Rs 2,712 crore in fiscal 2023), driven by higher inpatient volumes, changes in specialty mix towards higher value specialties leading to better ARPOB, reported at Rs 61,890 in fiscal 2024 (Rs 59,098) as well as better scale up of the Lucknow and Patna hospitals (combined revenue contribution of Rs 987 crore in fiscal 2024 against Rs 740 crore in fiscal 2023). Occupancy increased to 61.6% in fiscal 2024, against 58.8% in fiscal 2023, driven by improvement in in-patient volumes predominantly in the matured hospitals of GHL (mature hospitals include the Gurugram, Indore [Madhya Pradesh] and Ranchi [Jharkhand] facilities) where occupancy increased to 62% from 58% in fiscal 2023 while that of Lucknow and Patna hospitals remained flat at around 60%. Improvement in revenue along with consequent benefits of operating leverage, resulted in the operating margin increasing to 24.9% in fiscal 2024 from 23.6% in fiscal 2023. The Patna hospital, in the second year of its operations, registered an improvement in operating margin to 23.5% in fiscal 2024 (against 9.8% in fiscal 2023) due to better occupancy.

 

GHL incorporated a wholly owned subsidiary, GHL Pharma and Diagnostic Pvt Ltd (GHPDPL), w.e.f. June 29, 2022. The company has expanded its footprint and has set up eight diagnostic labs with 100+ collection centres. GHPDPL recorded operational losses of Rs 10 crore in fiscal 2024 due to initial stage of operations in the diagnostic business. GHL proposes to move its outpatient pharmacy business to this entity, which will help fund the expansion plans of diagnostic business. This, although moderate in scale, will add to revenue diversification.

 

The financial risk profile is supported by strong capital structure, healthy debt protection metrics and liquidity. Consolidated adjusted networth stood at Rs 2,900 crore and debt (including lease liabilities) at Rs 802 crore as on March 31, 2024, with gearing at 0.28 time. GHL has planned capital expenditure (capex) of more than Rs ~2,500 crore over the next 3-5 fiscals, for setting up a greenfield hospital in Noida (Rs 600-700 crore), bed addition and expansion of specialties at existing hospitals in Patna and Lucknow (Rs 150-200 crore), new hospitals at Mumbai, South Delhi and Indore. GHL will also be building a residential complex at its flagship hospital to help outstation patients stay at the premises. Further, GHL has set up a wholly owned subsidiary, which will be building and operating a medical college in Gurugram. The above projects except Noida and bed expansions in Lucknow and Patna, are planned to be implemented over 3-5 years. The capex will be funded through a prudent mix of cash accrual and debt. Even though the company may avail of external debt, gearing is expected below 0.5 time over the medium term.

 

The ratings continue to reflect the experienced management of GHL in therapeutic segments and healthy financial risk profile. These strengths are partially offset by risks related to implementation and timely stabilisation of upcoming hospitals, geographic and therapeutic segmental concentration in revenue and exposure to intense competition.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of GHL and its wholly owned subsidiaries -- GHPPL and GHPDPL; these entities are collectively referred to herein as GHL. The erstwhile subsidiary, MHPL, post amalgamation is subsumed in GHL.

 

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:

Established market position

Through its network of five hospitals under the Medanta Hospital brand, GHL has established presence in National Capital Region (NCR) and East India. It also has a long operational track record of over 15 years in the tertiary and the quaternary healthcare segments and benefits from the strong brand reputation and the extensive experience of the promoter, Dr Naresh Trehan, in the healthcare industry. The group, with a combined bed capacity of more than 2,800 beds as of June 2024, is one of the leading players in the tertiary care segment in NCR and East India. GHL plans to increase the number of beds to around 5,000 beds primarily in the adjacent geographies of existing hospitals over the medium term, as well as in the newer markets in Western India, which will further enhance its market position.

 

The flagship hospital in Gurugram is one of the largest single-location hospitals, with ~1,400 beds and offering multi-specialties. The revenue profile is well diversified across specialties with no specialty contributing more than 25% of the revenue. Cardio treatments account for the highest share of revenue at ~23%, followed by oncology at 12% and neurosciences and gastric sciences at ~11% each. The balance is spread across urology, orthopaedics, liver transplant and others.

 

Dependence on the flagship Gurugram hospital (Medanta Medicity) is decreasing, with ramp-up of operations at the Lucknow and Patna hospitals. The Lucknow hospital achieved operational break-even in fiscal 2022, recorded 49% growth in revenue to Rs 568 crore in fiscal 2023. Revenue further grew by 22% to Rs 698 crore in fiscal 2024, aided by improvement in occupancy, steady bed additions and increase in ARPOB.

 

Operating margin improved by 100 bps to 36% for MHPL in fiscal 2024. Further, the Patna hospital achieved breakeven in fiscal 2023, its first full year of operations as well and revenue registered an improvement of 70% in fiscal 2024. Supported by improvement in performance across hospitals, operating profitability improved to 24% in fiscal 2024 and is expected to sustain at 22-24% over the medium term, with some moderation expectation with addition of new beds.

 

Experienced management and healthy operating efficiency

GHL benefits from the stewardship of Dr Naresh Trehan, one of the leading cardiac surgeons in India. Dr Trehan was instrumental in the establishment and management of Escorts Heart Institute & Research Centre (Escorts). His two decades at the helm of Escorts were spent in pioneering initiatives for the development of healthcare delivery in India and research in cardiology. Also, the hospital has prominent doctors heading other therapeutic departments, such as orthopaedics, gastroenterology, neurology and oncology, resulting in an established patient base. Revenue grew at compound annual rate of over 12% between fiscals 2014 and 2024, supported by industry-leading revenue/bed rate, good occupancy and strong reputation. 

 

Despite the bed additions and commencement of operations in new hospitals, GHL has sustained its operating profitability above 20% over the past three fiscals. Despite the bed additions planned, operating profitability will sustain at 22-24% over the medium term supported by sustenance of occupancy and growth in ARPOB. Healthy profitability and increasing occupancy levels have enabled steady improvement in the group’s return on capital employed (RoCE), which stood at around 19.5% in fiscal 2024, compared with 13-16% in earlier years. RoCE will moderate in the near-to-medium term due to aggressive capex and initial losses in new hospitals but will remain above 15%.

 

Healthy financial risk profile

Financial risk profile is supported by a well-managed balance sheet, aided by IPO proceeds in fiscal 2022, resulting in comfortable debt metrics. The management philosophy is also to maintain gearing within 1 time, notwithstanding capex, which is happening across private hospitals, given the shortage of quality healthcare.

 

Net cash accrual to total debt ratio stood at 0.82 time and interest coverage ratio at 10.5 times in fiscal 2024, against 0.41 time and 7.83 times, respectively, in fiscal 2023. Gross debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio also improved to 0.98 time from 1.75 times.

 

GHL’s capex of ~Rs 2,500 crore will be implemented during the next 3-5 fiscals and will be funded by mix of debt, cash accrual and cash surpluses (Rs 983 crore on September 30, 2024), as it seeks to take bed capacity to ~5,000 beds. Besides, the company is also setting up a medical college at Gurugram. With debt addition, debt/Ebitda ratio will moderate but remain healthy at below 1.5 times. Cash surpluses too will moderate but still remain sizeable at Rs 600-700 crore over the medium term. That said, any further sizeable organic or inorganic growth opportunities that may involve sizeable debt addition will remain monitorable.

 

Weaknesses:

Revenue concentration risk and exposure to intense competition

Geographic and segment concentration in revenue persists. Increase in beds in new hospitals has helped reduce concentration risk. Even though GHL has expanded operations to Lucknow and Patna, its flagship hospital in Gurugram will continue to be the key revenue and profitability driver over the medium term. This is because while the Lucknow hospital commenced operations in November 2019, the other hospitals in Ranchi and Indore are smaller and have modest occupancy. The contribution for Patna hospital is <10% of consolidated revenue at present. While the company is also diversifying into Mumbai, contribution from the same is expected after 3-4 years.

 

Although upcoming hospitals in New Delhi, NCR and Uttar Pradesh will intensify competition in the healthcare space over the medium term, established hospitals, such as Medanta Medicity, are better placed to take on the competition, compared with mid-sized hospitals.

 

Exposure to risks related to implementation and timely stabilisation of operations

The company has sizeable capex planned for the medium term, for setting up greenfield hospitals in Noida and Mumbai, while expanding bed capacity to 4,500-5,000 beds over the medium term. Besides, GHL is also setting up a medical college at Gurugram. Some of these markets already have well-established players. Timely ramp-up and stabilisation of operations in the new hospitals will remain monitorable.

 

Both the Lucknow and Patna hospitals achieved breakeven in the first year of operations. Ability of GHL to set up and stabilise greenfield projects provides comfort in lieu of the new hospital in Noida. However, timely implementation without significant time and cost overruns will be a key monitorable.

 

Exposure to regulatory risk

The government policy on capping prices for medical procedures such as treatment of Covid-19 and medical devices such as coronary and knee implants, has impacted players in the healthcare sector. Such price-control mechanisms have a direct bearing on the operating margin of players through reduction in revenue and affect inflow of premium patients (including medical tourism), who would prefer getting such procedures done abroad. Any policy change that may negatively impact the credit risk profile of the company will be closely monitored.

Liquidity: Strong

Cash accrual, expected at Rs 600-700 crore per annum over the medium term, will adequately cover yearly debt obligation of Rs 100-150 crore and part-fund the sizeable capex. Liquidity is supported by healthy cash surplus of over Rs 1,000 crore as on December 31, 2024. As surpluses will be partly used to fund the sizeable capex, they will moderate from fiscal 2024 levels but still remain sizeable at Rs 600-700 crore.

Outlook: Positive

GHL will continue to benefit from higher bed count, stable occupancy and increased realisations over the medium term. The business risk profile will benefit from adequate revenue diversification from different multispecialty treatments, high ARPOBs and healthy operating efficiency. The financial risk profile will also be supported by increase in operating cash flow and prudent expansion, which is being undertaken in a modular manner.

Rating Sensitivity Factors

Upward Factors

• Sustaining healthy occupancies and ARPOBs at existing hospitals and successful implementation of capacity expansion and ramp up of operations at the new hospitals, ensuring healthy revenue growth, while maintaining operating margin at over 20%
• Continued prudent funding of expansion plans, leading to limited debt and strong debt protection metrics

 

Downward Factors

• Slower-than-expected ramp up of revenue, including from new hospitals or due to intensifying competition, also leading to operating margin falling below 15-16% impacting overall cash accrual
• Further sizeable, debt-funded capex or any inorganic expansions leading to a significant moderation in debt protection metric
• Lower-than-expected cash surpluses

About the Company

GHL was established in 2004 by Dr Naresh Trehan. A world-class, super-specialty, tertiary-care hospital in Gurugram, Medanta Medicity, commenced operations in November 2009, and has capacity of ~ 1,400 beds and ~40 operation theatres, besides state-of-the-art diagnostic and laboratory facilities.

 

In fiscal 2015, GHL entered an arrangement to manage a ~150-bed hospital each in Indore and Ranchi on a lease basis. The company also operates two hospitals at Lucknow and Patna under 100% subsidiaries named MHPL and GHPPL, respectively. The Lucknow hospital commenced operations in November 2019 and the Patna hospital in the second half of fiscal 2022; the company is also setting up a greenfield hospital in Noida. GHL also incorporated a wholly owned subsidiary, GHPDPL, on June 29, 2022, and is proposing to move its outpatient pharmacy business to this entity and start diagnostic services in it.

 

Consolidated operational bed count stood at ~2,373 as on March 31, 2024.

Key Financial Indicators

As on/for the period ended March 31	Unit	2024	2023
Revenue	Rs crore	3278	2694
Profit after tax (PAT)	Rs crore	478	326
PAT margin	%	14.6	12.10
Adjusted debt/adjusted networth*	Times	0.14	0.35
Interest coverage	Times	10.49	7.83

*adjusted debt factors in lease liabilities

Any other information: Not Applicable