Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Mahatma Gandhi University of Medical Sciences and Technology (MGUMST) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL BBB+/Stable/CRISIL A2’.

 

The upgrade reflects the improvement in the business risk profile of MGUMST driven by timely completion of capacity expansion and improved occupancy in the hospital and medical college, which should lead to higher revenue over the medium term. The financial risk profile and liquidity will benefit from better operating surplus leading to higher debt service coverage ratio (DSCR).

 

The performance was impacted in the first half of fiscal 2021 and revenue declined around 37% on-year. However, the university took quick corrective steps to speed up collections and a significant portion of beds were allocated for Covid care, which compensated for loss of revenue from the non-Covid segment, resulting in revenue growth of around 2% on-year for the hospital for fiscal 2021. Admissions for MBBS and other undergraduate courses were delayed to around January 2021. No material decline in occupancy and subsequent timely collection of admission fees resulted in revenue growth of 10.3% on-year for the medical college. The growth was also supported by addition of 96 seats, despite lower hostel income and some non-clinical seats in PG remaining unoccupied due to the pandemic.

 

From fiscal 2022, addition of 100 seats in the MBBS course, 40 seats in the BDS course and the second batch for postgraduate courses will increase the overall student capacity by 224. There are several batches with lower fees, which will graduate in the current year. The batches thereafter have higher fees per annum which will lead to increase in average fee per student per annum. Increased capacity and higher average fee per student, along with track record of healthy occupancy, should support revenue growth in the education division in fiscal 2022 and thereafter. The hospital is also expected to see increase in revenue because of addition of around 210 beds and supported by the speciality division which houses high-revenue procedures such as oncology which has pent-up demand in the region. Beds were added in fiscal 2021 and fiscal 2022 will be the first full year of operations.

 

The second wave of Covid-19 during the first quarter of fiscal 2022 has not affected revenue or profitability as was earlier expected. MGUMST recorded revenue of Rs 127.65 crore and operating surplus of around Rs 36.25 crore (28.4%) and cash accrual of around Rs 28.29 crore for the period.

Operating surplus was healthy at 24-26% in the three years through fiscal 2021 and is expected to improve, backed by addition of students and hospital beds with no large additional operating expense.

 

Higher revenue and operating surplus will increase the cash generating ability going forward. The financial risk profile has improved due to higher revenue and the expected improvement in profitability should lead to a better DSCR.

 

Liquidity improved backed by unencumbered liquid funds of around Rs 34.6 crore and cushion in bank lines of Rs 3.64 crore as on June 30, 2021. The liquidity cushion (cash and bank balance and unutilised bank lines) averaged Rs 56 crore in fiscal 2021 and is expected to improve with no major debt funded capex plan over the next 2-3 years.

 

The ratings continue to reflect the university’s sound track record in medical education and hospital management, strong operating efficiency and healthy occupancy ratio. The ratings also factor in support from the trustees and the management’s healthy reputation along with the university’s large and increasing scale of operations and profitability. These strengths are partially offset by regulatory risks amid the pandemic and the likely competition from upcoming government medical colleges.

Key Rating Drivers & Detailed Description

Strengths:

* Sound track record: MGUMST, earlier managed by the Indian Education Trust (IET) , started operations with a hospital in 2001 and later set up a medical college. In 2011, it was granted the university status under the Jaipur Ordinance, 2011 (Ordinance number 4), by the Governor of Rajasthan. Over the years, the university has expanded its reach and range of offerings and built a strong reputation.

 

* Healthy occupancy of college seats: The university reported 100% occupancy across all departments over the three academic years through 2020. In academic year 2021, occupancy declined to around 96% on account of Covid-19. With the college’s track record and strong reputation, occupancy is likely to return to 100% in academic year 2022 as the pandemic situation improves.

 

* Strong operating efficiency: Healthy occupancy for medical courses as well as the hospital resulted in operating margin of 25.7% in fiscal 2020 (up from 24.09% in fiscal 2019), translating into moderate return on capital employed (RoCE) of above 15% in fiscal 2020. Operating margin and RoCE were earlier expected to decline in fiscal 2021. However, timely admissions and improvement in occupancy at the hospital helped sustain the operating margin at 24.7% or the fiscal.

 

* Support from the trustees and healthy reputation of the management: The trustees have provided consistent support in shaping the quality of education provided at the university. Apart from overseeing operations at the university, they have implemented best practices from their decade-long experience in the education and hospital management sectors. They also provided unsecured loans during the university’s expansion phase.

 

* Large scale of operations and healthy profitability: Revenue is estimated at Rs 385 crore in fiscal 2021 vis-à-vis Rs 358.93 crore in fiscal 2020, and has increased considerably from Rs 161.3 crore in fiscal 2016. With commencement of the Doctor of Medicine (MD), Master of Surgery (MS) and Doctorate of Medicine (DM) courses in fiscal 2021; increase in hospital beds to 210; addition of 100 seats in the MBBS course; and radiation blocks and other labs likely in fiscals 2022 and 2023, receipts may increase. Hospital receipts have not grown significantly because of the fall in occupancy in the non-Covid-19 division in the first half of fiscal 2021. Gradual recovery is expected over the medium term, along with traction in new courses.

 

Weaknesses:

* Susceptibility to regulatory changes: Establishment and operations of educational institutions are regulated by various governmental and quasi-governmental agencies, such as the University Grants Commission, All India Council for Technical Education, universities, state governments, Medical Council of India and Indian Nursing Council. Each body has detailed procedures for granting permission to set up institutions, and approvals need to be renewed every three or five years. Also, the university needs to regularly invest in its workforce and infrastructure. Any non-compliance would result in cancellation of affiliation and license, leading to loss of reputation for the college and revenue for the trust.

 

Also, regulatory changes - such as changes in the student-teacher ratio, increase in minimum infrastructure, and control over fees - could have a disruptive effect on some private educational institutions. In fiscal 2021, the hospital offered around 700 hospital beds for Covid-19 patients. However, the charges are decided by the state government. Furthermore, the state government has mandated services to be provided within the stipulated tariff. Hence, MGUMST has limited control over charges for its premium services.

 

* Likely competition from upcoming government medical colleges: While government colleges have high demand because of their low fees, the demand-supply mismatch has augured well for private colleges. However, the government has begun to acknowledge the steep gap between demand for medical colleges and their availability and has started to act upon it. Government actions include relaxation of norms for private colleges and universities, along with addition of government colleges. In 2019, the government gave the nod for setting up 75 medical colleges. Previously, the government had extended permission for 58 medical colleges in phase I and 24 in phase II. This led to addition of 15,700 MBBS seats across the country. Furthermore, in academic year 2019-20, government colleges saw the highest addition of MBBS seats, at 2,750 in 25 new government colleges. Therefore, addition of government colleges with substantially lower fees could lure students away from private colleges.

Liquidity: Strong

Liquidity is expected to remain healthy. Cash accrual (estimated at Rs 67.12 crore in fiscal 2021), expected at Rs 100 crore, Rs 140 crore and Rs 170 crore in fiscals 2022, 2023 and 2024, respectively, will sufficiently cover yearly maturing debt of Rs 33-40 crore. Improvement in cash accrual is aided by recovery of the hospital division and courses added in the past two years.

 

The debt repayment is structured such that the major debt obligation for the year is due in October after receipt of fees in the education department. However, admissions to the MBBS course were delayed in fiscal 2021, as entrance examinations were not held on time, narrowing the liquidity cushion. DSCR should remain comfortable at a minimum of 1.96 times over the medium term. Utilisation of bank overdraft averaged 45% over the 12 months through July 2021

Outlook: Stable

MGUMST will maintain its financial risk profile and sustain its operating income over the medium term, supported by its strong reputation and brand.

Rating Sensitivity Factors

Upward factors

• Ramp-up of the newly added hospital division and expansion of capacity in the college leading to DSCR above 2.3 times
• Efficient working capital management resulting in higher profitability and build-up of liquid funds
• Prepayment of term loans improving the financial risk profile, particularly debt protection metrics

 

Downward factors

• Regulatory changes impacting the performance of the university
• Fall in DSCR to below 1.7 times
• Substantial delay in receipt of tuition or admission fees leading to a short-term liquidity crunch
• Major debt funded capex impacting financial risk profile and debt protection metrics.

About the University

MGUMST is a Jaipur-based private university and one of the largest private hospitals in Rajasthan, spread across 36 acres. It gained university status in 2011. The university offers medical, nursing and dental courses and provides inpatient and outpatient healthcare services through 1,472 beds under Mahatma Gandhi Hospital. IET is the sponsoring body of MGUMST. Dr M L Swarankar, Ms Meena Swarankar, Mr R Soni and Ms Neelam Soni are the founder-promoters of IET.

Key Financial Indicators

Particulars	Unit	2021*	2020
Revenue	Rs.Crore	385	358.93
Profit After Tax (PAT)	Rs.Crore	54.82	43.30
PAT Margin	%	14.24	12.09
Adjusted debt/adjusted networth	Times	1.41	1.62
Interest coverage	Times	3.37	3.22

*Provisional

Any other information: Not applicable