August 07, 2020

Muthoot Health Care Private Limited: Rating reaffirmed

Summary of rating action Previous Rated Current Rated Instrument* Amount Amount Rating Action (Rs. crore) (Rs. crore) Long-term – Fund Based/TL 13.22 9.52 [ICRA]BBB- (Stable); reaffirmed Long-term – Fund Based/CC 2.50 5.00 [ICRA]BBB- (Stable); reaffirmed Long-term – Unallocated - 1.20 [ICRA]BBB- (Stable); reaffirmed Total 15.72 15.72 *Instrument details are provided in Annexure-1

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

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

The Stable outlook on the [ICRA]BBB- rating reflects ICRA’s opinion that MHPL will continue to benefit from the extensive experience of its promoters and their personal involvement, aided by the reputation of the Muthoot Group.

Key rating drivers and their description

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

Established position with good infrastructure – Established in 1988, MHPL is among the few multispecialty hospitals in Kozhencherry, with an adequate infrastructure. The extensive track record of the hospitals provides comfort. Both the hospitals have an established panel of doctors/surgeons across multiple specialties with quality medical infrastructure.

Regular support from Muthoot family – The promoters have periodically extended unsecured loans to the company over the years, which have supported its debt service obligations. The unsecured loans from directors stood at Rs. 90 crores as on March 31, 2020

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Credit challenges Net losses on high interest cost and depreciation charges – The hospitals witnessed moderate occupancy of ~60% in the last three fiscal years. The occupancy decreased to 53% in FY2019, largely due to the Kerala floods, which hampered the hospital’s operations for around two months. However, things are back to normal now. With significant debt-funded capex, the interest cost and the depreciation charges remained high over the years, leading to net losses. Thus, the hospitals remained dependent on promoters for timely support in the past and would continue to require the same going forward.

Competition from bigger players; ability to attract talent remains key – While the hospitals cater to a specific catchment area and have created own brand in this space, these faces competition from bigger entities in nearby towns/cities, especially for critical care treatment. Thus, the hospitals’ ability to retain key medical talent to attract patients will be crucial in the long term.

Liquidity position: Stretched MHPL’s liquidity is stretched with low cash and liquid investments. Timely support by the promoters through unsecured loans or equity for meeting the shortfall in meeting fixed cost requirement of the company is crucial for its liquidity position.

Rating sensitivities Positive triggers – ICRA could upgrade MHPL’s rating if the company demonstrates self-sustenance in servicing debt obligations, backed by growth in revenues and profitability and improved liquidity profile. Specific credit metrics could include DSCR above 1.2 times on a sustained basis.

Negative triggers – ICRA could downgrade MHPL’s rating if there is delay in timely financial support from the promoters or further deterioration in the financial performance leading to decline in revenues and profitability.

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

About the company Muthoot Hospital, Kozhenchery, Kerala is a 250-bedded hospital and remains one of the renowned multispecialty 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 175-bedded super- speciality hospital started in 2003. It caters to 12 specialties and seven super-specialties and has 24-hr trauma care, laboratory, pharmacy, radiology, CT, MRI, quality and infection control departments, etc. The company is headed by Dr. George Kurien Muthoot (close relative of Mr. ), who has over 20 years of experience in healthcare.

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Key financial indicators (audited/provisional) FY2019 FY2020* Operating Income (Rs. crore) 82.81 90.07 PAT (Rs. crore) -9.02 -9.57 OPBDIT/OI (%) 3.46% 2.96% PAT/OI (%) -10.89% -10.63%

Total Outside Liabilities/Tangible Net Worth (times) -2.23 -1.85 Total Debt/OPBDIT (times) 39.41 41.33 Interest Coverage (times) 1.45 1.35 *Key Financial Indicators are basis Provisional results

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years

Current Rating (FY2021) Rating History for the Past 3 Years Instrument Amount Amount Rating FY2020 FY2019 FY2018 Type Rated Outstanding 7-Aug-20 15-Jul-19 2-Apr-18 - Long [ICRA]BBB- [ICRA]BBB- [ICRA]BBB- - 1 Term Loan 9.52 9.52 Term (Stable) (Stable) (Stable) Long [ICRA]BBB- [ICRA]BBB- [ICRA]BBB- - 2 Cash Credit 5.00 - Term (Stable) (Stable) (Stable) Long [ICRA]BBB- - - - 3 Unallocated 1.20 - Term (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

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Annexure-1: Instrument details ISIN Instrument Date of Issuance Coupon Rate Maturity Date Amount Current Rating and No Name / Sanction Rated Outlook (Rs. crore) 8.90%-9.00%- September Term Loan September 2016 9.52 [ICRA]BBB- (Stable) 9.30%-9.50% 2023 Cash Credit - 9.00% - 5.00 [ICRA]BBB- (Stable) Unallocated - - - 1.20 [ICRA]BBB- (Stable) Source: MHPL

Annexure-2: List of entities considered for consolidated analysis: Not applicable

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

Gaurav Singla Geetika Mamtani +91-124-4545366 +91-124-4545832 [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]

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