| Kailash Healthcare Limited | ||||||
| Ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of Kailash Healthcare Ltd (KHC; a part of the Kailash group) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL BBB+/Stable/CRISIL A2’.
The upgrade reflects an improved financial risk profile, driven by healthy accretion to reserve and its likely sustenance over the medium term as well amidst absence of any large capital expenditure (capex). With routine retirement of debt, gearing dropped to below 1 time as on March 31, 2021; debt protection metrics also got better. Further, liquidity also strengthened owing to better accretion to reserves and fund realisation from the sale of the hospital in Behror (Rajasthan). Resultantly, reliance on bank lines reduced to negligible levels during six months through Sep-21, with additional Rs 33.5 crore of unencumbered funds available (as on September 30, 2021) to encounter medium-term exigencies and routine working capital requirement.
Business risk profile also improved as operations from all the hospitals scaled up and hence revenue contribution from one hospital (to the group's turnover) declined to 52% in first half of fiscal 2022, from 71% in fiscal 2018. Moreover, selling off the loss-making Behror hospital in fiscal 2021 along with stabilised operations in all other hospitals, resulted in an improved operating efficiency during first half of fiscal 2022. Going forward, market position will continue to remain benefitted from the group's established brand, Kailash, presence across multiple geographies through various hospitals and healthy scalability expected in fiscal 2022.
The ratings continue to reflect the group's established market position, supported by ramp up in operations of all the hospitals, extensive experience of promoters in the healthcare industry, along with group’s healthy financial risk profile. These strengths are partially offset by large working capital requirement and moderate operating profitability. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of KHC and Kailash Hospitals Ltd (KHL). This is because the entities, together referred to as the Kailash group, have considerable operational and financial linkages, are in the same business, and have a common brand. Furthermore, KHC holds 55.8% stake in KHL.
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 market position and experience of promoter Market position of the group is supported by strong brand recall, Kailash, particularly in Delhi-NCR region, presence across different geographies through multiple hospitals and sustained revenue growth witnessed over the past few years. Having started the operations with one hospital in 1993, based out at Noida, the group subsequently expanded its reach to different territories such as Greater Noida, Khurja and Dehradun, and currently operates five hospitals. Brand recall of existing hospitals also aided the brisk ramp up of newly setup hospitals, hence aiding the overall scalability of the group, as evident by revenue of Rs 284 crore during April-Sep in fy22. Further scalability expected out of newly setup hospitals, stable growth in older hospitals and promoters experience of over three decades in the healthcare industry, will further support the business risk profile of the group over the medium term.
Healthy financial risk profile Financial risk profile should remain supported by improving profitability and subsequent accretion to reserve. Networth was Rs 151.49 crore as on March 31, 2021 and may increase to over Rs 170.00 crore over the medium amid healthy accretion to reserves. Total outside liabilities to tangible networth ratio, was comfortable at 1.65 times as on March 31, 2021, and is expected to improve to below 1.5 times over the medium term amid absence of debt funded capex. Debt protection metrics were healthy too, with interest coverage and net cash accrual to adjusted debt ratios of 3.12 times and 0.18 time, respectively, in fiscal 2021; the metrics may improve to more than 5.00 times and above 0.20 time over the medium term.
Weaknesses Large working capital requirement Despite improvement over the years, the operations continue to remain working capital intensive with gross current assets (GCAs) of 151 days as on March 31, 2021 (163 days during previous fiscal), predominantly driven by debtors of 122 days (144 days during last year). Debtor credit remains high due to higher intake of non-cash patients such as third-party administrators, Central Government Health Scheme and railway health care scheme etc. Though proportionate contribution of such patients (in overall revenue) has subsided to 25% currently, from around 40-45% in fy18, sustained improvement in the same leading to further moderation in working capital requirement will be closely monitored.
Moderate operating profitability Operating profitability of the group has remained moderate over the years, ranging 11.5-12.5% through fy21; 11.7% in fy21. Due to nascent stages of operations in a couple of hospitals, the operating profitability there stood negative till fy21. Also, loss making operations in Behror hospital further impacted the operating profitability of the group. Though stabilized operations in all the hospitals along with selling off loss making Behror hospital aided the operating profitability of the group in first half of fiscal 2022, its sustenance will remain a key monitorable. |
Liquidity: Strong Liquidity should remain supported by nil utilized bank lines, excess accruals vis a vis repayments and cash & cash equivalence available. Cash accrual is projected at over Rs 52 crore per annum over the medium term, sufficient to meet the yearly debt obligation of Rs 22 crore. Bank limit utilization was negligible at 6.5% over past six months through Sep-21. Current ratio was moderate at 1.14 times on March 31, 2021; unencumbered cash and bank balance was healthy at over Rs 33.5 crores as on September 30, 2021. Low gearing and healthy net worth further support group’s financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business |
Outlook: Stable The Kailash group will continue to benefit from extensive experience of the promoters and an established market position. |
Rating Sensitivity Factors Upward Factors
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About the Group KHC was established in 1993 by Dr Mahesh Kumar Sharma as Kailash Hospital & Research Centre Ltd; it got its present name in fiscal 2008. The company operates multi-specialty hospitals in Noida (Uttar Pradesh) and Behror. The Noida facility is approved by the National Accreditation Board for Hospitals. The company manages two hospitals under an operations and maintenance contract: Deepak Memorial Hospital & Medical Research Centre in East Delhi and Shri Swami Bhumanand Dharmarth Chikitsalaya & Research Institute in Haridwar (Uttarakhand). The hospitals in Khurja (Uttar Pradesh) and Dehradun (Uttarakhand) have been operational since March 2016 and December 2016, respectively.
KHL, incorporated in 1999, operates a multi-specialty hospital in Greater Noida. It also runs Kailash Institute of Naturopathy, Ayurveda, and Yoga, which offers a wide range of specialty treatments. KHC holds 55.8% stake in KHL, Uma Medicare Ltd holds 6.5%, and the remaining is held by Mr Garg and his family members. |
Key Financial Indicators
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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
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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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