February 20, 2020

KIMS Healthcare Management Limited: [ICRA]A- (Stable)/[ICRA]A2+ Ratings Reaffirmed;

limits enhanced

Summary of rating action

Instrument* Previous Rated Amount Current Rated Amount Rating Action
(Rs. crore) (Rs. crore)

Fund-based Term Loan 22.00 173.00 [ICRA]A- (Stable); Reaffirmed

Fund-based Cash Credit 25.00 25.00 [ICRA]A- (Stable); Reaffirmed
Long-term/Short-term [ICRA]A- (Stable)/[ICRA]A2+;
12.00 12.00
Non-fund Based Limits Reaffirmed
Unallocated Limits 41.00 0.00 -
Total 100.00 210.00
*Instrument details are provided in Annexure-1

Rationale
The reaffirmation of ratings takes into account the consistent improvement in the operating margins of KIMS Healthcare
Management Limited (KHML) over the last three years and H1FY2020 aided by closure of loss making KIMS Kochi
operations in August 2018 and divestment of KHML’s stake in loss making subsidiary KIMS Bibi Healthcare Private
Limited in August 2019. Further, some of the loss-making subsidiaries reported profit at operating level in H1FY2020. The
ratings favorably considers the strong brand reputation of KHML pertaining to its flagship hospital at Trivandrum in
Kerala as evident from over 75% occupancy rate and healthy average revenue per occupied bed (ARPOB). Further, the
ratings continue to take into account the long operational track record of KHML in the tertiary healthcare segment and
its diversified presence across different specialties; the top three specialties—general medicine (13% of consolidated H1
FY2020 revenues), orthopaedics (11%) and gynaecology (9%)—account for around 33% of the total revenues. KHML’s
sizeable presence across multiple specialities helps it to minimise revenue concentration risk. The financial risk profile of
KHML at the consolidated level is healthy. The operating income grew at a CAGR of ~15% between FY2014 to FY2019 to
Rs. 644.6 crore in FY2019 from Rs. 321.4 crore in FY2014, backed by increase in bed capacity and improvement in
performance of the existing hospitals. ICRA notes the continued improvement in operating margins in FY2019. The net
worth augmentation post the private equity investment by True North in March 2017, led to a comfortable capital
structure, with low gearing and TOL/TNW of 0.3 times and 0.6 times, respectively, as on March 31, 2019. Further, the
committed line of capital, worth Rs. 120 crore, from the private equity investor provides financial flexibility to the
company. KHML’s coverage metrics continue to be healthy, with interest coverage of 6.4 times and TD/OPBDIT of 1.4
times as on March 31, 2019. The ratings also take into account the extensive experience of KHML's promoters of over
two decades in the healthcare industry.

The ratings, however, remain constrained by KHML’s high reliance on its Trivandrum facility, which contributed 69% to
the OI and almost 87% operating profit of the group in H1 FY2020 (Provisional). This exposes the Group to geographical
concentration risk. Out of the two of the subsidiaries (KIMS Bellerose and KIMS Kollam) which were reporting EBITDA
losses since they were acquired in 2013 because of their low occupancy and low-yielding specialty mix, one subsidiary
turned EBITDA positive (KIMS Kollam) in H1 FY2020. However, these subsidiaries are dependent on KHML for financial

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support. Further, EBITDA losses from subsidiaries has resulted in supressed RoCE at consolidated level in FY2019 albeit
witnessed an improvement with closure of loss making entity (KIMS Kochi; part of the standalone entity) in August 2018
and reduction in losses of subsidiaries. During FY2019, the overall occupancy levels of some of the subsidiaries dropped
(KIMS Alshifa, KIMS Bellerose, KIMS BIBI) resulting in overall occupancy level of the group reducing from 63% in FY2018
to 58% in FY2019. The same improved during H1FY2020 to 62%. The company's ability to ramp up the occupancies and
consequently achieve EBITDA break-even for all its hospitals remains a rating sensitivity. The rating is also constrained by
KHML’s large capex plans, especially the ongoing 280-bed increase in capacity at the Trivandrum hospital, which is
expected to be operational fully by H2FY2021. The company has incurred a capex of Rs 75 crore towards the said capex
as on December 31, 2019, which was funded through internal accruals. Additionally, the Trivandrum market is expected
to witness the entry of a large hospital chain, which will result in significant bed addition over the next three years. Such
lumpy capacity addition could lead to under absorption of capacities, thereby constraining the pricing ability of the
incumbents. Notwithstanding the competitive incentive mechanism currently offered by KHML to its doctors, retention
of doctors would also remain a key challenge. The overall capex outlay of KHML in FY2020 and FY2021 is estimated to be
around Rs. 340 crore which includes Rs.250 crore for the new Trivandrum facility and Rs. 50 crore towards equipment for
a new hospital in Nagercoil (hospital premises will be taken on lease), which is expected to be funded by around Rs. 190
crore debt and balance through internal accruals. Given KHML’s low leverage levels, despite the large capex programme,
the projected coverage and leverage metrics are expected to remain healthy. However, the impact of the expected rise
in competition in the Trivandrum market on KHML’s occupancy and ARPOB and consequently on its ability to sustain high
operating margins remains to be seen.

Key rating drivers

Credit strengths
Strong brand reputation in Trivandrum – KHML has strong brand reputation pertaining to its flagship hospital at
Trivandrum, Kerala as evident from more than 75% occupancy rate, healthy ARPOB and consistently improving operating
margins over the last three years. Further, the company benefits from the long operational track record and the two-
decade long experience of the promoters in the heathcare industry.

Diversified speciality mix - The company has a revenue mix from diverse specialties. The top three specialties—general
medicine (13% of consolidated H1 FY2020 revenues), orthopaedics (11%) and gynaecology (9%)—account for ~33% of
the total revenues. KHML’s sizeable presence across multiple specialities helps it to minimise the concentration risk.

Healthy consolidated financial profile - The operating margins of KHML has improved consistently over the last three
years and H1FY2020 aided by closure of loss making KIMS Kochi operations in August 2018 and divestment of KHML’s
stake in loss making subsidiary KIMS Bibi Healthcare Private Limited in August 2019. Further, some of the loss-making
subsidiaries reported profit at operating level in H1FY2020. Following the net worth augmentation post the private
equity investment by True North in March 2017, KHML has a comfortable capital structure, with low gearing and
TOL/TNW of 0.3 times and 0.6 times, respectively, as on March 31, 2019. Further, the committed line of capital, worth
Rs. 120 crore, from the private equity investor provides financial flexibility to the company. KHML’s coverage metrics are
healthy, with interest coverage of 6.4 times and TD/OPBDIT of 1.4 times as on March 31, 2019. Given KHML’s low
leverage levels, despite the large capex programme, the coverage and leverage metrics are expected to remain healthy.

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Credit challenges
High dependence on Trivandrum facility given weak performance of subsidiaries- The company is highly reliant on its
Trivandrum facility, which contributed 69% to the OI and 85% of the operating profit of Group in H1 FY2020. This
exposes the Group to geographical concentration risk. Out of the two of the subsidiaries (KIMS Bellerose and KIMS
Kollam) which were reporting EBITDA losses since they were acquired in 2013 because of their low occupancy and low-
yielding specialty mix, one subsidiary turned EBITDA positive (KIMS Kollam) in H1 FY2020. However, these subsidiaries
are dependent on KHML for financial support. Further, EBITDA losses from subsidiaries has resulted in supressed RoCE at
consolidated level in FY2019 albeit witnessed an improvement with closure of loss making entity (KIMS Kochi; part of the
standalone entity) in August 2018 and reduction in losses of subsidiaries. The company's ability to ramp up the
occupancies and consequently achieve EBITDA break-even remains a rating sensitivity.

Large capex program - The company in the process of ramping up its bed capacity at Trivandrum hospital by 280 beds,
which is expected to be operational fully by H2FY2021. Trivandrum market is expected to witness the entry of a large
hospital chain, which will result in significant bed addition over the next three years. Such lumpy capacity addition could
lead to under absorption of capacities, thereby constraining the pricing ability of the incumbents. The overall capex
outlay of KHML in FY2020 and FY2021 is estimated to be around Rs. 340 crore which includes Rs.250 crore for the new
Trivandrum facility and Rs. 50 crore towards equipment for a new hospital in Nagercoil (hospital premises will be taken
on lease), which is expected to be funded by around Rs. 190 crore debt and balance through internal accruals. Given
KHML’s low leverage levels, despite the large capex programme, the coverage and leverage metrics are expected to
remain healthy.
Retention of doctors to remain key challenge - Notwithstanding the competitive incentive mechanism currently offered
by KHML to its doctors, retention of doctors would also remain a key challenge.

Liquidity position
The liquidity position of the company is adequate with unencumbered cash of Rs. 41 crore as on March 2019, healthy
cushion in working capital facilities with undrawn limit of around Rs 16 crore. The average utilisation of fund-based
facilities during February 2019 to January 2020 has been low, at 34%. The debt repayment obligation in FY2020 of Rs. 36
crore can be comfortably met through estimated cash flow from operations. The capex for FY2020 and FY2021 is
estimated at Rs 95 crore and Rs 245 crore respectively which is proposed to be funded through Rs. 190 crore of debt and
remaining Rs. 150 crore through internal accruals. The projected cash flow from operations are estimated to be
adequate to meet the margin for capex and the debt obligations.

Rating Sensitivities
Positive triggers – ICRA may upgrade the ratings of KHML in case of substantial growth in revenues and profitability,
better than expected ramp-up of the upcoming facility in Trivandrum and achieving break-even for loss-making
subsidiaries. Specific credit metrics include DSCR above 2.5 times on a sustained basis.
Negative triggers - Negative pressure on KHML’s rating may arise if larger-than-anticipated debt-funded capex or
weakening of operational performance of KHML’s flagship facility at Trivandrum and/or widening of losses for KHML's
subsidiaries. Specific credit metrics include DSCR below 1.8 times on a sustained basis.

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Analytical approach

Analytical Approach Comments

Applicable Rating Methodologies
Parent/Group Support
Consolidation/Standalone
Corporate Credit Rating Methodology
Rating Methodology for Hospitals
Not applicable
For arriving at the ratings, ICRA has considered the consolidated financials of
KHML. As on March 31, 2019, the company had six subsidiaries, which are
enlisted in Annexure-2.

About the company

KIMS Healthcare Management Limited (KHML) was set up in 2002 by a group of professionals in Trivandrum, Kerala. It is
a tertiary-care hospital, with 40 specialty departments. The hospital has been accredited by the National Accreditation
Board for Hospitals (NABH), the Australian Council on Healthcare Standard International (ACHSI), the National
Accreditation Board for Laboratories (NABL), and the NABH Accredited Blood Bank. As on September 30, 2019, the
company had four operational hospitals and a cancer care and research centre, which are spread across Trivandrum,
Kottayam, Kollam and Perinthalmanna in Kerala with a total capacity of 1,153 beds. During H1FY2020, the company
exited the hospital in Hyderabad (KIMS Bibi Healthcare Private Limited) and post the same the consolidated bed capacity
stands at 1,153 as on September 30, 2019. The company also operates one wellness clinic and one nursing college in
Trivandrum. As on December 31, 2019, Condis India Healthcare Private Limited holds 61.06% stake in KHML and the
remaining 38.94% stake is held by individual shareholders.

Key financial indicators

FY2018 FY2019
Operating Income (Rs. crore) 610.8 644.6
PAT (Rs. crore) 15.7 34.5
OPBDIT/OI (%) 15.8% 19.0%
RoCE (%) 7.2% 10.6%

Total Debt/TNW (times) 0.3 0.3

Total Debt/OPBDIT (times) 2.1 1.4
Interest Coverage (times) 4.8 6.4
Source: KHML

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for past three years
Chronology of Rating History for the
Current Rating (FY2020) Past 3 Years
Date &
Rating Date &
Amount Amount Date & Rating in Rating in
Rated Outstanding Date & Rating in FY2019 FY2018 FY2017
Instrument Type (Rs. crore) (Rs. crore) 20-Feb-2019 7-May -2019 - -
1 Term Loan Long 173.00 173.00 [ICRA]A- (Stable) [ICRA]A- - -
Term (Stable)
2 Cash Credit Long 25.00 25.00 [ICRA]A- (Stable) [ICRA]A-
Term (Stable)
3 Bank Long 12.00 12.00 [ICRA]A- [ICRA]A-
Guarantee/Letter Term/ (Stable)/[ICRA]A2+ (Stable)/
of Credit
Short [ICRA]A2+
Term
4 Unallocated Long - - - [ICRA]A-
Term/ (Stable)/

Short [ICRA]A2+
Term

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
Amount
Date of Rated
Issuance/ Coupon Maturity (Rs.
ISIN No Instrument Name Sanction Rate Date crore) Current Rating and Outlook
September August
NA Term Loan 9.1% 145.00 [ICRA]A- (Stable)
2019 2029
8.65% -
NA Term Loan July 2018 July 2023 28.00 [ICRA]A- (Stable)
8.8%
NA Cash Credit - - - 25.00 [ICRA]A- (Stable)
Bank
NA Guarantee/Letter of - - - 12.00 [ICRA]A- (Stable)/[ICRA]A2+
Credit
NA Unallocated Limits - - - - -
Source: KHML

Annexure-2: List of companies considered for consolidated analysis

Company Name Ownership* Consolidation Approach
KIMS Bellerose Institute of Medical Sciences Private Limited 90.83% Full Consolidation
KIMS Kollam Multi Specialty Hospital India Private Limited 83.19% Full Consolidation
KIMS Al shifa Hospital Private Limited 51.00% Full Consolidation
KIMS BIBI Healthcare Private Limited** 55.54% Full Consolidation
KIMS Nagercoil Institute of Medical Sciences Private Limited 53.26% Full Consolidation
Spiceretreat Hospitality Services Private Limited 100% Full Consolidation
*As on March 31, 2019
** considered up to H1 FY2020

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Shubham Jain
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shubhamj@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
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Ms. Naznin Prodhani
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communications@icraindia.com

Helpline for business queries:

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

info@icraindia.com

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For more information, visit www.icra.in

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