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Press ReleaseAlchemist Hospitals LimitedApril 06, 2021RatingsFacilities/InstrumentsLong Term Bank FacilitiesTotal Bank FacilitiesOptionally Fully ConvertibleDebentureAmount(Rs. crore)RatingsRating Action54.64(Reduced from 55.38)CARE BB ; Stable(Double B Plus;Outlook: Stable )Reaffirmed and removedfrom Credit watch withNegative Implications;Stable outlook assignedCARE BB ; Stable(Double B Plus;Outlook: Stable )Final Rating ConfirmedReaffirmed and removedfrom Credit watch withNegative Implications;Stable outlook assigned54.64(Rs. Fifty-Four Crore and SixtyFour Lakhs Only)8.93(Reduced from 25.00)8.93(Rs. Eight Crore and Ninety-ThreeLakhs Only)Details pf instruments/facilities in Annexure-1Total Long Term InstrumentsDetailed Rationale & Key Rating DriversCARE has reaffirmed the ratings, removed it from ‘Credit Watch with Negative Implications’ and assigned ‘Stable’ outlook tothe bank facilities and long term instruments (OCDs) of Alchemist Hospitals Limited (AHL). The ratings were earlier placed on‘Credit Watch with Negative Implications’ following the proposal of the company to acquire an already operational hospital (inthe near vicinity), proposed to be funded through the issue of Optionally Convertible Debentures (OCDs) amounting to Rs.25Cr., to be issued to the existing shareholders of the hospital being acquired. However, the company has now alloted OptionallyConvertible Debentures amounting to Rs.8.93 cr. instead of Rs.25 cr. as proposed earlier, to acquire a shareholding of 35.71%in Ojas Medical Services Private Limited (OMS). The total stake acquired by AHL in OMS stands at 72.83%. The remaining stakehas been acquired through cash payment to the existing shareholders.The ratings assigned to AHL continue to be constrained by the modest scale of operations, fluctuating profitability margins andexpected write-off of the recoverable outstanding from a group concern which will lead to depletion of the networth of AHL.The rating further remains constrained by the concentration in the revenue stream, risks in the healthcare industry associatedwith the availability & attrition of medical professionals and with treatments done, limited geographical reach and competitionfrom established players. The ratings, however, derive strength from the established track record of operations, regulatoryapprovals in place, wide range of specialty services offered & established infrastructure, healthy occupancy levels, comfortablesolvency position and growing demand for healthcare services in India.Rating SensitivitiesPositive Factors - Factors that could lead to positive rating action/upgrade: Sustained and significant improvement in PBILDT margins over 20% going forward. Sustained and substantial increase in the scale of operations to around Rs.170 cr.Negative Factors- Factors that could lead to negative rating action/downgrade: Any major funding support/ diversion of funds to the group concerns/related parties affecting the credit profile of AHL. Complete liability of redemption of the OCDs falling on the company without any external support, in case of 100%redemption of OCDsDetailed description of the key rating driversKey Rating WeaknessesModest scale of operations, fluctuating profitability margins and depletion of the networth: The scale of operations of thecompany remained modest with a total operating income of Rs.107.09 Cr. in FY20. The same, however, increased marginallyby 3% as compared to FY19 primarily on account of increase in the rates of various services offered, leading to revenuegrowth. The PBILDT margins declined in FY20 to 13.86% from 14.71% in FY19 on account of higher operational expenses inFY20 viz. payments to consultants and purchase of medicines and consumables and impact of COVID-19 on operations of the1CARE Ratings Limited

Press Releasehospital towards the end of March, 2020. The PAT margins, however, improved significantly to 4.86% in FY20 from 0.14% inFY19, as there were lower extraordinary expenses in FY20 and no deferred tax liability during the year, as compared to Rs.4.48cr. of extraordinary expenses (pertaining to loss on sale of asset) in FY19.Concentration in the revenue stream: The company derived 57% of its total operating income in FY20 from the top fivedepartments, with the cardiology department alone constituting 16% of the total income in FY20. The revenue stream of thecompany is therefore associated with a concentration risk. The continued availability of professionals in the department andmaintenance of service quality will directly affect the revenue stream of the company from these departments.Risks in the healthcare industry associated with the availability and attrition of medical professionals as-well-as thetreatments done: Presence of qualified medical professionals such as doctors, paramedical staff and support staff is one of theimportant requisites of any hospital to be successful and to get continued patronage from the local population. There is anincreasing level of competition and the scarcity of medical specialists in the domestic healthcare industry. Furthermore,healthcare is a highly sensitive sector where any mishandling of a case or negligence on the part of any doctor and/or staff ofthe unit can damage the reputation of the hospital to a large extent. In such an industry scenario, operations of hospitals likeAHL are also therefore, highly dependent on the availability of qualified medical professionals and its ability to retain its currentpool.Limited geographical reach and competition from established players in the region: The company is operating a single hospitalin Panchkula (Haryana). This limits the ability to tap opportunities and revenue. Further, though the hospital has an establishedoncology and cardiology department, it faces stiff competition from several other private hospital chains. This leads tocompetition not only in acquiring patients, but also in attracting medical professionals.Key Rating StrengthsEstablished track record of operations, regulatory approvals in place and healthy occupancy levels: The company wasoriginally incorporated in 1994 as Kaiser Hospital Limited and operated the single hospital in Panchkula under the name ‘KaiserHospital’. It was subsequently acquired by the current promoters in 2006 and rechristened as Alchemist Hospitals Limited. Theoperations of the company are being looked after by its current director. Mr. Karan Deep Singh (son of Mr. Kanwar Deep Singh,Member of Parliament and the founder promoter of the Alchemist Group). He holds an industry experience of more than tenyears and is supported by an experienced management team. The hospital has been operational for around two and a halfdecades now leading to an established track record in the Panchkula, Haryana region. The occupancy levels in the hospitalremained healthy and stood at 80% in FY20. The hospital holds accreditations from National Accreditation Board for Hospitalsand Healthcare Providers (NABH) as well as National Accreditation Board for Testing and Calibration Laboratories (NABL). Thisleads to an advantage to the company in terms of attracting patients as well as medical professionals. The hospital derivesmost of its income each year from private patient inflow ( 70% in FY20). The hospital also has tie ups with several reputedThird-Party Administrators and private & public institutions. Further, the hospital is also empanelled under the CGHS (CentralGovernment Health Scheme) and ECHS (Ex Servicemen Contributory Health Scheme) schemes of the government. This segmentconstituted 5% of the total income in FY20.Established infrastructure and wide range of services offered: The 186 bedded multi-specialty hospital has medicalprofessionals and associated infrastructure and equipment for various departments like oncology, neurology, cardiology,gynaecology etc. The hospital facilities are equipped with OPD (out-patient department) facilities, operation theatres,pathological lab, catheterization lab etc. along with technologically sound medical equipment and supporting infrastructurelike Intensive Care Units, general wards, luxury rooms, blood bank, pharmacy etc. The hospital is associated with severalreputed doctors as well as consultants who are supported by a qualified and experienced staff. Most of the doctors are workingwith the hospital are working exclusively for it, though on consultancy basis.Comfortable overall solvency position: The capital structure of the company remained comfortable with the debt to equityratio and overall gearing ratio at 0.29x and 0.38x respectively, as on March 31, 2020; as compared to 0.19x and 0.27xrespectively, as on March 31, 2019. The capital structure deteriorated as on March 31, 2020 mainly on account of new termloans availed by the company in FY20 for the capex undertaken during the year. The interest coverage ratio and total debt toGCA ratio also stood comfortable at 6.59x in FY20 and 4.11x as on March 31, 2020, respectively (PY: 5.35x and 4.56x,respectively). The interest coverage ratio deteriorated on account of lower PBILDT in absolute value terms in FY20 and higherinterest costs incurred in FY20. The total debt to GCA ratio deteriorated on account of higher total debt outstanding at the endof the year in FY20.AHL has acquired 72.38% stake in another hospital- OMS (Panchkula), in 2020-2021, which will operate as a subsidiary of AHL.The acquisition has been funded through issuance of OCDs amounting to Rs.8.93 Cr. for 35.71% stake, while the remaining36.67% was acquired through cash payment to the existing shareholders. OMS has reported cash losses in the past (FY18-FY202CARE Ratings Limited