Metropolis Healthcare Ltd - Rating outlook revised to 'Positive', Ratings Reaffirmed

CRISIL Ratings has revised its outlook on the proposed long-term bank facilities and non-convertible debentures (NCDs) of Metropolis Healthcare Limited (MHL) to 'Positive' from 'Stable' while reaffirming the long-term rating at 'CRISIL AA-'. CRISIL Ratings has also reaffirmed its rating on the proposed working capital facilities at 'CRISIL A1+'.

The revision in the outlook factors in expected sustained growth in revenue and improvement in margins while maintaining robust financial risk profile on the back of debt free balance sheet and strong liquidity, which is expected to sustain over near-to-medium term. The ratings continue to reflect the leading position of MHL in the diagnostic services market in India, supported by well-established brand and healthy operating efficiency resulting in strong cash flow. The ratings also factor in the proven track record of the promoters. These strengths are partially offset by high-albeit-reducing geographical concentration in the revenue profile, market fragmentation and moderate entry barriers in the diagnostics industry.

During fiscal 2024, although overall reported revenue increased to Rs.1,208 (fiscal 2023: Rs.1,148 crore) crore, topline from core business (excluding Covid 19 and allied activities) increased by 13.3% on-year to Rs.1,166 crore. Growth was led by 8.8% growth in patient volumes in core business to 11.59 million and 4.1% increase in core revenue per patient to Rs.1,066. Core test volumes grew by 8.8% and revenue per test (RPT) grew by 4.2% to Rs.497 in fiscal 2024 (fiscal 2023: Rs.477 per test). Volume expansion can be attributed to increase in test offerings, continued robust demand given the strong recall for Metropolis brand, and deeper penetration into Tier-2 and Tier 3 cities aided by network expansion of labs and service centres. Realisation growth was driven by price hikes across some of its test offerings.

Revenue during the first quarter of fiscal 2025 grew steadily by 13% year-on-year (y-o-y) to Rs 313 crore driven by growth in patient volumes of 7% and 6% rise in revenue per patient (RPP). Test volumes were up by 10% to 6.3 million and revenue per test increased by 3%. Over the medium term, revenue is expected to grow by 10-12% supported by increase in test offerings coupled with healthy mix of patient visits and RPP and RPT, deeper penetration into Tier-2 and Tier 3 cities aided by network expansion of labs and service centres.

Operating margin improved sharply to 25.0% during the first quarter of fiscal 2025 (first quarter of fiscal 2024: 23.0%) on the back of higher operating leverage, growing contribution of high margin segments such as wellness and specialised testing. Operating margin during fiscal 2024 slightly moderated to 23.9% (fiscal 2023: 25.75) mainly on account of increase in overhead costs incurred for newly setup labs, which were in gestation period. Over the medium term, margins are expected to gradually improve and sustain at 25-26% owing to the benefits of higher fixed cost absorption, increased realisations, expected rise in share of high margin segments such as specialised and wellness testing.

Financial risk profile continues to be strong, with healthy adjusted networth of Rs 975 crore as on March 31, 2024 (Rs 900 crore a year earlier) and is expected to further improve with steady accretion to reserve. Cash accrual projected at ~Rs 240-260 crore per annum -- along with liquid surplus should be sufficient to meet the yearly capex (including ROU asset addition) of Rs.130-140 crore over the near-to-medium term and incremental working capital requirements, if any. MHL was debt free as on March 31, 2024.

To propel growth and expand its geographical reach, the company could consider small-to-medium-sized acquisitions. The strong balance sheet and healthy liquidity position provides flexibility to absorb modest-sized acquisitions without significantly impacting the key credit metrics. However, any large, debt-funded acquisition will be a key monitorable.

Shares of Metropolis Healthcare Limited was last trading in BSE at Rs. 2181.00 as compared to the previous close of Rs. 2160.60. The total number of shares traded during the day was 3450 in over 516 trades.

The stock hit an intraday high of Rs. 2204.30 and intraday low of 2151.70. The net turnover during the day was Rs. 7538948.00.

Source : Equity Bulls

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MetropolisHealthcare INE112L01020 RatingUpdate OutlookRevision