Muthoot Health Care Private Limited: Rating Reaffirmed

July 15, 2019

Muthoot Health Care Private Limited: Rating reaffirmed

Summary of rated instruments Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) [ICRA]BBB- (Stable); Long Term – Fund Based/TL 13.22 13.22 reaffirmed [ICRA]BBB- (Stable); Long Term – Fund Based/CC 2.50 2.50 reaffirmed Total 15.72 15.72 *Instrument details are provided in Annexure-1

Rationale The rating reaffirmation favourably factors in the strengths derived by Muthoot Health Care Private Limited (MHPL) as a part of the Muthoot Group, which has a diversified presence in sectors like financial services, hospitality, healthcare, education. The rating also draws comfort from the regular funding support provided to the entity by the promoter in the form of unsecured loans. This apart, the rating positively factors in the hospital’s long track record of operations and the personal involvement of the Muthoot family in the same.

The rating, however, remains constrained by the hospital’s net losses in the backdrop of moderate occupancy, given that the Group runs the hospitals for philanthropic purposes and offers subsidised rates for various medical facilities. The company has been incurring net losses due to higher depreciation and interest expenses. Nonetheless, it started generating operating profits since FY2018. The hospitals also face intense competition from various players in the vicinity as well as the nearby cities.

Going forward, the company’s ability to increase its occupancy levels and receive timely support from the promoter will be the key rating sensitivities. Given the fixed operating expenses in the hospital, the adequacy of debt funding availed in a timely manner will be an important credit rating sensitivity.

Outlook: Stable The company will continue to benefit from the extensive experience of its promoters and their personal involvement. The outlook may be revised to Positive if the company is able to significantly improve its operating metrics, thereby substantially increasing its occupancy levels. The outlook may be revised to Negative if the operating metrics weaken or the promoter support is inadequate, resulting in weak liquidity.

Key rating drivers

Credit strengths Extensive experience of promoters and established presence of the Muthoot Group – ICRA draws comfort from the good franchise and market position of the Muthoot Group, which has diversified revenue streams and a long track record. The key promoters, including the Managing Director, are personally involved with the college, providing comfort in terms of operations as well as funding support.

Established position with good infrastructure – Founded in 1988, MHPL is among the few multi-speciality hospitals in Kozhencherry, Kerala with an adequate infrastructure. The long track record of the hospitals provides comfort. The hospitals have seen a modest increase in the operating profits, in spite of a marginal decline in occupancy on the back of some decrease in the revenue per bed per day to Rs. 5,434 in FY2019 from Rs. 5,908 in FY2018.

Regular support from the Muthoot family – The promoters have periodically extended unsecured loans to the company over the years, which have supported its debt service obligations. In FY2019, unsecured loans from directors were of Rs. 85.39 crore compared with Rs. 80.49 crore in FY2018.

Credit challenges Net losses due to high interest cost and depreciation charges – The hospitals had been witnessing moderate occupancy of ~50% over the last two financial years. The occupancy slipped to 48% in FY2019, largely due to the Kerala floods, which hampered the hospital operations for around two months. However, things have normalised now. With significant debt-funded capex, the interest cost and the depreciation charges remained high, leading to net losses. Thus, the dependence on the promoter for timely support has been visible in the past and would be required going forward.

Ability to attract talent remains critical amid intense competition from larger players – While the hospitals cater to a specific catchment area and have created their own brands in this space, these face competition from larger players in the nearby towns/cities, especially for critical care treatment. Thus, the hospitals’ ability to retain the key medical talent to attract patients will be crucial in the long term.

Liquidity position

MHPL’s liquidity position is supported by unsecured loans from promoters and it aids in cashflow management and timely debt repayments.

Analytical approach

Analytical Approach Comments Applicable Rating Methodologies Corporate Credit Rating Methodology Parent/Group Support Not applicable Consolidation/Standalone Standalone

About the company Muthoot Hospital, Kozhenchery, Kerala is a 250-bedded hospital and has been one of the renowned multi-specialty hospitals in the area since 1988. The medical centre offers 15 specialties and nine super-specialty medical services. Mar Gregorious Memorial Muthoot Medical Centre, Muthoot Hospital, Pathanamthitta, Kerala is a 75-bedded super- speciality hospital that commenced operations in 2003. The hospital caters to 12 specialties and seven super-specialties

with a 24-hour trauma care, laboratory, pharmacy, radiology, CT, MRI, quality and infection control department, etc. The company is headed by Dr. George Kurien Muthoot (close relative of Mr. Alexander George Muthoot), who has over 20 years of experience in healthcare.

In FY2019, as per provisional numbers, the company reported a net loss of Rs. 10.6 crore on an OI of Rs. 83.0 crore compared with a net loss of Rs. 15.3 crore on an OI of Rs. 88.5 crore in the previous year.

Key financial indicators (Audited) FY2017 FY2018

Operating Income (Rs. crore) 73.1 88.5 PAT (Rs. crore) -16.4 -15.3 OPBDIT/ OI (%) -2.6% 2.6% RoCE (%) -25.1% -15.1%

Total Debt/ TNW (times) -3.1 -2.2 Total Debt/ OPBDIT (times) -54.1 48.1 Interest Coverage (times) -0.8 0.5

Status of non-cooperation with previous CRA: None

Any other information: None

Rating history for last three years:

Chronology of Rating History for the Current Rating (FY2020) past 3 years Date & Amount Amount Date Rating in Rated Outstanding &Rating FY2019 - - Instrument Type (Rs. crore) (Rs. crore) July 2019 April 2018 - - 1 Term Loan Long 13.22 13.22 [ICRA]BBB- [ICRA]BBB- - - Term (Stable) (Stable) 2 Cash Credit Long 2.50 2.50 [ICRA]BBB- [ICRA]BBB- Term (Stable) (Stable)

Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

Annexure-1: Instrument Details Date of Amount Issuance / Maturity Rated Current Rating ISIN No Instrument Name Sanction Coupon Rate Date (Rs. crore) and Outlook September September [ICRA]BBB- Term Loan - 13.22 2016 2023 (Stable) [ICRA]BBB- Cash Credit - - - 2.50 (Stable) Source: MHPL

Annexure-2: List of entities considered for consolidated analysis Company Name Ownership Consolidation Approach NA NA NA

ANALYST CONTACTS K. Ravichandran Manish Ballabh +91-44-45964301 +91-124-4545812 [email protected] [email protected]

Sheetal Sharad Nishant Misra +91-124-4545374 +91-124-4545862 [email protected] [email protected]

RELATIONSHIP CONTACT Jayanta Chatterjee +91 80 4332 6401 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

ICRA Limited

Corporate Office Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002 Tel: +91 124 4545300 Email: [email protected] Website: www.icra.in

Registered Office 1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001 Tel: +91 11 23357940-50

Branches

Mumbai + (91 22) 24331046/53/62/74/86/87 Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294, Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008, Bangalore + (91 80) 2559 7401/4049 Ahmedabad + (91 79) 2658 4924/5049/2008 Hyderabad + (91 40) 2373 5061/7251 Pune + (91 20) 2556 0194/ 6606 9999

Contents may be used freely with due acknowledgement to ICRA.

ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents