CRISIL reaffirms NCD rating of Metropolis Healthcare Limited

CRISIL, a Credit Rating Agency has reaffirmed its 'CRISIL AA-/Stable' rating on the Non-Convertible Debentures and the long-term loan facility of Metropolis Healthcare Limited and has also reassigned its 'CRISIL A1+' rating to the short-term bank facility of the Company.

The ratings reflect MHL's leading position in the diagnostic services market in India, supported by a well-established brand and strong reach and healthy operating efficiency, driven by robust cash flow and prudent working capital management. The ratings also factor in a strong financial risk profile and the proven track record of the promoters. These strengths are partially offset by exposure to risks related to high, albeit reducing, revenue contribution from the business-to-business (B2B) segment, market fragmentation and moderate entry barriers in the diagnostics industry.

Operating income grew by about 13% in fiscal 2020, with expansion of patient service centres (PSCs) leading to an increase in the number of patients serviced. In fiscal 2020, the number of patients serviced grew 16% to 10 lakh from 8.9 lakh a year earlier. Revenue per patient remained high at Rs 856 in fiscal 2020 (Rs 836 in fiscal 2017). While the Covid-19 pandemic temporarily impacted revenue and margin in April and May 2020, performance normalised from June onwards with easing of the nationwide lockdown and increase in the share of Covid-19 tests, largely offsetting the decline in revenue from specialised tests. Revenue growth is expected to sustain over the medium term, with further expansion of PSCs and the number of patients serviced. Besides, operating margin is expected to normalise and sustain at 22-25% over the medium term (25% in fiscal 2020) owing to various cost rationalisation measures implemented by MHL, including consolidation of testing centres and rationalisation of other overheads.

Financial risk profile remains strong, as indicated by a debt-free balance sheet and comfortable credit metrics. The group also had sizeable cash surplus of around Rs 235 crore as on June 30, 2020, supporting liquidity. To propel growth, the management could consider small-to-medium-sized acquisitions to enhance the geographical presence. The group's strong balance sheet and cash position provide the flexibility to absorb modest-sized acquisitions without significantly impacting the key credit metrics. Nonetheless, any large-sized debt-funded acquisition will be a key monitorable.

Source : Equity Bulls

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