By Ragini Surve

This announcement rectifies the version published on 23 December 2020 to correctly state the incorporation date and instrument type in the rating history table. The amended version follows: India Ratings and Research (Ind-Ra) has upgraded Vikram Hospital (Bengaluru) Private Limited’s (VHBPL) Long-Term Issuer Rating to ‘IND BBB’ from ‘IND BBB-’. The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Term loan

December 2022

INR92.73  (reduced from INR133.93)

IND BBB/Stable

Upgraded

Fund-based limit

-

INR50.00

IND BBB/Stable/IND A3+

Upgraded


The upgrade reflects an improvement in the company’s liquidity position due to healthy EBITDA generation.
 

KEY RATING DRIVERS

Liquidity Indicator - Adequate: In FY20, VHBPL’s cash flow from operations and free cash flow from operations increased to INR275.46 million (FY19: INR141.86 million) and INR204.67 million (INR122.31 million), respectively, owing to healthy EBITDA generation. The EBITDA improved to INR393.10 million (FY19: INR186.79 million) due to increased revenue. Also, the company’s cash and cash equivalents increased to INR249.66 million in FY20 (FY19: INR80.45 million). As on 3 December 2020, the company had cash and cash equivalents of around INR300.00 million. Despite the impact of the COVID-19-led disruptions in 1QFY21, VHBPL’s liquidity is likely to remain adequate in FY21 owing to the resumption in operations from 2QFY21 at 60% occupancy levels. At end-November 2020, the company had an unutilised fund-based limit of INR43.62 million, out of sanctioned limits of INR50.00 million for FY21. VHBPL’s total principal debt obligation amounts to INR41.20 million in FY21.

Credit Metrics to Remain Strong over the Short Term: The company's credit metrics improved in FY20 owing to growth in the EBITDA, the scheduled repayment of term loans and increasing cash and cash equivalent. The gross interest coverage (EBITDAR/gross interest expense + rent) was 3.18x in FY20 (FY19: 2.02x) and the net leverage (adjusted net debt/operating EBITDAR) was 1.69x (3.38x). The agency expects the metrics to  remain strong in FY21 over short term due to the maintenance of healthy absolute EBITDA amid the absence of any debt-led capex plans.

Medium Scale of Operations; Revenue Likely to Fall Slightly in FY21: VHBPL’s revenue improved 16% yoy to INR1,694.36 million in FY20 due to an increase in the occupancy as well as the average revenue per bed. However, in 1QFY21, the occupancy declined to 27% (1QFY20: 43%; FY20: 47%) as the healthcare industry witnessed the postponing of many elective surgeries due to COVID-19. According to the government’s imposition, 39 beds of the hospital’s facility were reserved for COVID-19 patients in 1HFY21. Even though the revenue contribution from these beds was meagre in 1QFY21, it picked up from 2QFY21 due to the increasing number of COVID-19 patients. VHBPL’s occupancy level increased to 60% in 2QFY21 due to a rebound of surgeries (1QFY21: 27%). However, the average revenue per bed declined in 2QFY21 to below INR40,000 (1QFY21: INR54,456) due to the lower realisation from the hospitalisation of COVID-19 patients as compared to surgical cases. The company achieved revenue of INR857.20 million till end-October 2020. With the operations impacted in 1QFY21, the agency expects the revenue to decline 10% yoy in FY21. 

Profitability Improved in FY20 but Likely to Contract in FY21: The company’s EBITDA margins improved to 23.20% in FY20 (FY19: 12.84%) owing to an increase in its revenue and a fall in costs. The return on capital employed stood at 20% in FY20 (FY19: 10%). The company reported an EBITDA loss in 1QFY21 due to low occupancy level of 27%. However, with the revival in operations from 2QFY21 and the cost-optimisation measures taken by the company, which included a reduction in doctor charges, VHBPL achieved an EBITDA of INR148.30 million till end-October 2020. Despite this, the agency expects the profitability in FY21 to be lower as compared to pre-COVID-19 levels due to the likely decline in the revenue. 

Backed by Private Equity Firm as Promoter; 100% Stakeholder:  The rating benefits from the continuance of private equity firm, Multiples, as a 100% stakeholder in the company. Multiples has close to USD1.5 billion of assets under management. Since the scheduled redemption of preference shares, which are held by investors, has been postponed by five years, the agency does not expect a major chunk of cash outflow (equal to the amount of the preference shares) over the medium term. Also, according to the management and the private equity investor, the exit of private equity investors will be planned at an opportune time, and hence, no fixed date is available with the agency.

Competition from Established Players: VHBPL continues to face competition from large players such as Apollo Hospital and Fortis Hospital, which operate in the same geography and have established themselves through chains of hospitals.



RATING SENSITIVITIES

Positive: A significant improvement in the revenue and profitability, along with maintaining the liquidity profile. will be positive for the ratings.

 

Negative: Deterioration in the credit metrics and/or any debt-led capex, leading to the net leverage exceeding 3.5x and /or any deterioration in liquidity profile, will be negative for the ratings.


COMPANY PROFILE

VHBPL, incorporated in 2009, is a mutli-speciality care hospital located in Bengaluru headed by Dr. Somesh Mittal. The hospital is a healthcare provider with cardiology, cardiac surgery, neurology, nephrology and pulmonology as its primary specialities with a total capacity of 198 beds.

FINANCIAL SUMMARY

Particulars

FY20

FY19

Revenue (INR million)

1,694.36

1,454.81

EBITDA (INR million)

393.10

186.79

EBITDA margin (%)

23.20

12.84

Gross interest coverage (x)

3.86

2.02

Net leverage (x)

1.69

3.38

Source: VHBPL, Ind-Ra



RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

24 December 2019

Issuer rating

Long term

-

IND BBB/Stable

IND BBB-/Stable

Term loan

Long-term

INR92.73

IND BBB/Stable

IND BBB-/Stable

Fund-based limits

Long-term/short-term

INR50.00

IND BBB/Stable /IND A3+

IND A3



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity Indicator

Term loan

Low

Fund-based limits

Low

 

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Ragini Surve

    Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th Floor, West Wing, Bandra Kurla Complex, Bandra East,Mumbai - 400051

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121