Rating Rationale

06 Oct 2022

SRI KAUVERY MEDICAL CARE (INDIA) LIMITED

Brickwork Ratings upgrades/assigns the rating with a change in outlook for the Bank Loan
Facilities of Rs. 456.90 Crs. of Sri Kauvery Medical Care (India) Limited.

Particulars
Amount (Rs. Crs.) Rating^
Facility**
Tenure Previous
Previous Present Present
(30 Sep 2021)

Fund Based

Cash Credit 14.50 36.50

BWR A/Positive BWR A+/Stable
GECL Loan 8.36 8.36
Reaffirmation and Upgrade and
Term Loans 105.83 232.04 change in Outlook change in Outlook
Proposed Term Loan 160.00 - Long Term

BWR A+/Stable
Term Loans - 180.00 -
Assignment

Rupees Four Hundred and Fifty Six Crores and Ninety

Total 288.69 456.90 Lakhs Only

^Please refer to BWR website www.brickworkratings.com/ for the definition of the ratings;
**Details of the bank loan facilities are provided in Annexure-I. GECL: Guaranteed Emergency Credit Line

Rating Action/Outlook
The upgrade of the rating of Sri Kauvery Medical Care (India) Limited (SKMC or the company)
by Brickwork Ratings (BWR) factors the continuous improvement in the company’s financial
performance for two consecutive fiscals, FY21 and FY22, backed by an improvement in the
operating metrics and a similar growth momentum in H1FY23. The company's operating income
grew by ~38% on a standalone basis and ~42% on a consolidated basis in FY22. The
improvement in the scale of operations also resulted in an improvement in the profitability,
gearing and debt protections metrics. Additionally, the company has been focusing on inorganic
growth and has recently acquired a few assets. BWR also takes note of such ongoing capex with
most of them either completed or expected to be completed in the current fiscal, augmenting the
company’s scale of operations and diversifying the revenue stream in the near to medium term.

The rating continues to draw comfort from the company's established presence and long track
record with adequate infrastructure in the healthcare industry, extensive experience of the
management, moderate financial risk profile and Kauvery group of hospitals’ increased presence

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in Tamil Nadu and Karnataka through acquisitions and joint ventures, resulting in increased
brand recall. The rating remains constrained by the geographic concentration of operations,
exposure to risks related to the implementation and stabilisation of operations for its capacity
expansion, exposure to regulatory risks including pricing restrictions, and ability to attract
talented consultants amid intense competition from larger established players. BWR also notes
instances of the issuance of corporate guarantees aggregating ~Rs. 100 Crs. (PY ~Rs. 94 Crs.)
issued on behalf of its subsidiaries as on 31 March 2022.
BWR believes SKMC’s business risk profile will be maintained over the medium term. The
outlook may be revised to Positive if the company records significantly better-than-expected
revenue and profitability, supported by an increase in revenue per operating bed and occupancy
levels. The outlook may be revised to Negative if the operating metrics weaken or if
larger-than-anticipated debt-funded capex leads to a deterioration in the credit metrics and
liquidity.

KEY RATING DRIVERS

Credit Strengths-:
● Experienced management, and established track record and market position: SKMC is
the flagship company of Tamil Nadu-based Kauvery Hospitals group. The company and its
subsidiaries have established a prominent market position and the brand of Kauvery group of
hospitals in Tamil Nadu and Karnataka through a chain of eight hospitals. The group also
has a long operational track record of two decades and benefits from the extensive
experience of the group’s promoters in the healthcare industry. The private equity investment
from LGT Lightstone Aspada in FY20 brought in additional management skills and
financial flexibility to the company. The group, with a combined installed bed capacity of
1284 beds as on 30 June 2022, is a leading regional player in the tertiary care segment in
South India. It has a diversified presence across the region with its branches in Tennur
(Trichy) (182-bed multi-speciality), Heart City (Trichy) (103-bed cardiac care facility),
Chennai (210-bed multi-speciality), Salem (140-bed multi-speciality), Tirunelveli (100-bed
multi-speciality), Cantonment (Trichy) (235-bed multi-speciality), Hosur (140-bed
multi-speciality) and Bengaluru (174-bed multi-speciality).
● Diversification across various specialities with improving operational efficiencies and
continuous improvement in operational performance: The company’s hospitals have
diversified specialities that include cardiac science, general medicine, nephrology & urology,
neuroscience, oncology, orthopaedics, paediatrics, obstetrics & gynaecology, vascular
surgery, pulmonology, plastic surgery, gastro science, renal transplant, liver transplant, heart
& lung transplant, etc. The multi-specialities help minimise the concentration risk related to
any single speciality. SKMC has good infrastructure, and well-qualified and experienced
doctors and consultants. The company demonstrated a continued improvement on
operational parameters in FY22. The company’s out-patient (OP) and inpatient (IP) numbers
were around 5,17,336 (FY21: 3,73,760) and 61,423 (FY21: 46,005), respectively, on a
consolidated basis in FY22. Its average revenue per occupied bed (ARPOB) was ~Rs.
26,102 (FY21: ~Rs. 23,907), and the average length of stay (ALOS) was ~4.1 days (FY21:

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 ~4.1 days) in FY22 on a consolidated basis. The company’s bed occupancy level in FY22
was ~73% (FY21: ~62%) on a consolidated basis.
● Capital expenditure on technology upgradation and capacity expansion: The company
established its first hospital in Bengaluru in September 2020 by acquiring a 100% stake in
Ramakrishna Hospital, Electronic City, Bengaluru. Recently, the company acquired Galaxy
Hospital, Tirunelveli, on a slump sale basis under a Business Transaction Agreement (BTA)
dated 30 March 2022. This hospital has also started running with a 100-bed capacity from
01April 2022. The expansion through the acquisition route has led to a comparatively lower
turnaround time with consequent diversification and expansion of revenue stream. The
company has acquired another hospital, Yashomati Hospitals Private Limited (YHPL),
Bengaluru, through the Corporate Insolvency Resolution Process (CIRP). The fully
functional hospital is planned to have 200 beds. Additionally, the company is executing a
greenfield capex project of a 225-bed multi-speciality hospital in Chennai. It also plans to
start Trichy Oncology Centre in Trichy by October 2023. KMC Speciality Hospitals (India)
Limited, a subsidiary company of SKMC, is building a greenfield 190-bed mother and child
care hospital at Trichy with the expected date for the commencement of commercial
operations (DCCO) in October 2023. In addition, the group undertakes regular capex
through internal accruals/debt to upgrade its equipment at all sites to maintain delivery
standards. All these investments are expected to generate additional revenue in the near to
medium term for the company.
● Moderate and consistent improvement in financial performance: On a standalone basis,
the company’s operating income increased from Rs. 392.20 Crs. in FY21 to Rs. 539.28 Crs.
in FY22 due to an increase in bed occupancy and the ARPOB. The EBITDA increased from
Rs. 90.71 Crs. to Rs. 122.44 Crs. and the PAT from Rs. 49.44 Crs. to Rs. 67.33 Crs. over the
period. The gearing marginally increased to 0.45 time (PY 0.32 time) as on 31 March 2022.
The debt coverage metrics remained adequate, as reflected by the ISCR and DSCR of 9.43
times and 2.49 times, respectively, as on 31 March 2022. On a consolidated basis, the
company’s operating income increased from Rs. 597.22 Crs. in FY21 to Rs. 846.97 Crs. in
FY22. The EBITDA increased from Rs. 129.57 Crs. to Rs. 192.75 Crs. and PAT from Rs.
58.89 Crs. to Rs. 99.42 Crs. over the period. The gearing marginally increased to 0.62 time
(PY 0.54 time) as on 31 March 2022. The ISCR and DSCR were adequate, at 7.17 times and
2.87 times, respectively, as on 31 March 2022. The company has achieved an operating
income of ~Rs. 284 Crs. and ~Rs. 455 Crs. on a standalone and consolidated basis,
respectively, for H1FY23.

Credit Concerns-:
● Execution risk related to implementation and stabilisation of upcoming projects: The
group is undertaking debt-funded bed-capacity addition in the next two fiscals, which is
likely to moderately expose the financial profile to implementation risks, including time and
cost overruns. The company is in the process of building a new 225-bed multi-speciality
tertiary-care hospital in Chennai at a total project cost of ~Rs. 237 Crs. The project is to be
funded by ~Rs. 160 Crs. of debt (~68%) and ~Rs. 77 Crs. of equity (~32%). The company
has obtained all the necessary approvals under extant regulations for this hospital project,

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 and the expected DCCO for the project is 31 December 2022. It has acquired one hospital,
Yashomati Hospitals Private Limited (YHPL), Bengaluru, through the Corporate Insolvency
Resolution Process (CIRP) with the estimated total project cost of acquisition and
modernisation pegged at Rs. 186.40 Crs., funded through two term loans of aggregating Rs.
127.50 Crs. (68.40%) and equity of Rs. 58.90 Crs. (31.60%) . It was planned to operate as a
200-bed hospital. In addition, the company plans to start the Trichy Oncology Centre in
Trichy by October 2023 at a project cost of ~Rs. 40 Crs., to be funded through a mix of debt
(Rs. 28 Crs.) and equity (Rs. 12 Crs.). The company’s subsidiary, KMC Speciality Hospitals
(India) Limited, is building a 190-bed mother and child care hospital in Trichy at a project
cost of Rs. 141.80 Crs.(debt: Rs. 97.40 Crs., equity: Rs. 44.4 Crs.) to be started by October
2023. Apart from these ongoing capex projects, which would add ~615 beds to the group,
the company plans to add ~1000 beds to the group in the next 2-3 years through another
round of capex of ~Rs. 825 Crs., to be funded through a mix of debt and equity in a 65:35
ratio.

● Geographic concentration of business: The company is exposed to geographic

concentration risk as seven out of the company's eight hospitals are in Tamil Nadu. The
company’s current plans for the near future also focus around Tamil Nadu. One hospital was
launched in September 2020 in Bengaluru. The company has acquired another hospital in
Bengaluru, Yashomati Hospitals Private Limited. This is expected to help the company
diversify its geographical source of revenue to some extent.
● Exposure to regulatory risk and intense competition: The healthcare sector functions
under multiple layers of regulations of the government and professional bodies. The onset of
Covid-19 has increased the regulatory oversight and state intervention in the normal
operations of the hospitals. Any directive in terms of pricing restrictions may potentially
affect the margins of the industry as a whole. The ability to attract talent remains critical
amid intense competition from larger players. While the company’s hospitals have created
their own brand, they face competition from larger players in the nearby towns/cities,
especially for the critical care treatment. Thus, the hospitals’ ability to retain key medical
talent to attract patients will be crucial in the long term.

ANALYTICAL APPROACH - Consolidated

For arriving at its ratings, BWR has taken a consolidated view of the business and financial
profiles of Sri Kauvery Medical Care (India) Limited and its six subsidiaries, namely, KMC
Speciality Hospitals (India) Ltd, Hamsa Medical Services Pvt Ltd, Cutis Drug Point Pvt Ltd,
Kauvery Hospital Medical Services Private Limited, Kauvery Hospitals (Bengaluru) Private
Limited and Healthcare Capital Private Limited, collectively referred to as Kauvery Group
because of commonality of management and business, and significant operational and financial
linkages between the entities. In FY22, the six subsidiaries contributed ~43% in Group revenue
and ~25% in Group net profit.

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RATING SENSITIVITIES
Kauvery Group proposes to expand its operations through both acquisitions and greenfield
projects, going forward. The group’s ability to achieve timely operational break-even/
stabilisation in the newer units would be a key monitorable.
Upward
● Significant revenue growth and/or the diversification of revenue sources with a sustained
improvement in bed occupancy and growth in patient volume, while maintaining and/or
improving credit metrics
Downward
● Sluggish revenue growth and deterioration in operating margin to below 15% on a
consolidated basis, affecting cash flows
● Lower-than-expected revenue or profitability and/or higher-than-expected debt, leading
to the gearing exceeding 1.5 times (consolidated) on a sustained basis

LIQUIDITY INDICATORS - Adequate

Based on adequate net cash accruals, high cash and cash equivalents, comfortable debt coverage
metrics and a moderate current ratio, the company’s liquidity is adequate. The net cash accruals
and EBITDA of the company comfortably covered the debt obligations in FY22. The trend is
expected to continue in FY23 and FY24. The excess of net cash accruals over the CPLTD will
provide cushion for the working capital needs and future principal repayments. The company’s
debt coverage ratios were adequate as on 31 March 2022. However, BWR expects some
moderation in FY23 due to the addition of debt in FY22 and FY23. The average working capital
utilisation for the past 6 months was ~25% due to healthy operating cash inflow throughout
FY22. The company had high cash and cash equivalents as on 31 March 2022. The current ratio
declined as on 31 March 2022 due to decline in cash and cash equivalents and an increase in
trade payables and provisions. The impact of the increase in debt servicing obligations in FY23
and FY24 due to ongoing and planned debt-funded capex on liquidity would be key monitorable.

ABOUT THE COMPANY

Sri Kauvery Medical Care (India) Limited (SKMC) (popularly Kauvery Hospital) was
incorporated on 26 November 1997 at Trichy, Tamil Nadu. The registered office changed from
Trichy to Chennai in September 2019. The company is primarily rendering medical and
healthcare services. The company is a leading multi-speciality chain of hospitals, with a 735-bed
capacity across five hospitals in Tamil Nadu on a standalone basis, providing healthcare services
under the Kauvery group of hospitals. The total bed capacity, along with the hospitals of its
subsidiaries in Cantonment, Hosur and Bengaluru, is 1284. The company launched a hospital in
Tirunelveli on 01 April 2022 by acquiring Galaxy Hospital, Tirunelveli, on a slump sale basis
under a Business Transaction Agreement (BTA).
The company plans to merge two subsidiaries, Kauvery Hospitals (Bengaluru) Private Limited
and Kauvery Hospital Medical Services Private Limited in itself, in FY23, to support their
operations and execute the next round of expansion.
Dr. S Chandrakumar is the founder and executive chairman, and Dr. S Manivannan is the
co-founder and managing director.

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KEY FINANCIAL INDICATORS (STANDALONE)

Key Parameters 31 Mar 2022 31 Mar 2021

Units
Result Type Audited Audited
Operating Revenue Rs. Crs. 539.28 392.20
EBITDA Rs. Crs. 122.44 90.71
PAT Rs. Crs. 67.33 49.44
Tangible Net worth Rs. Crs. 372.97 338.86
Total Debt/Tangible Net worth Times 0.45 0.32
Current Ratio Times 1.43 2.30

KEY FINANCIAL INDICATORS (CONSOLIDATED)

Key Parameters 31 Mar 2022 31 Mar 2021

Units
Result Type Audited Audited
Operating Revenue Rs. Crs. 846.97 597.22
EBITDA Rs. Crs. 192.75 129.57
PAT Rs. Crs. 99.42 58.89
Tangible Net worth Rs. Crs. 449.34 383.68
Total Debt/Tangible Net worth Times 0.62 0.54
Current Ratio Times 1.48 2.05

KEY COVENANTS OF THE FACILITY RATED: The terms of sanction include standard
covenants normally stipulated for such facilities.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA - NA

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 RATING HISTORY FOR THE PREVIOUS THREE YEARS [including withdrawal and
suspended] :

Facilities Current Rating (October 2022) Rating History

Amount 2021 2020 2019

Type Rating 2022
(Rs. Crs.) 30Sep2021 30Sep2020 18Sep2019

Fund Based

BWR A/
Cash Credit 36.50 BWR A+/Stable Positive BWR BWR
GECL Loan 8.36 Upgrade and NA Reaffirmatio A/Stable A-/Stable
n and
Term Loans Long 232.04 change in Outlook Upgrade Upgrade
change in
Term Outlook

BWR A+/Stable
Term Loans 180.00 - - - -
Assignment

Rupees Four Hundred and Fifty Six Crores and Ninety Lakhs
Total 456.90
Only

Note: Initial rating of BWR BBB+/Stable was assigned on 09Jan2013 for Rs. 50 Crs. of bank loan facilities.
Rated amount on 18Sep2019: Rs. 87.25 Crs. Rated amount on 30Sep2020: Rs. 110.16 Crs. Rated amount on
30Sep2021: Rs. 288.69 Crs.

COMPLEXITY LEVELS OF THE INSTRUMENTS: Simple

For more information, visit https://www.brickworkratings.com/download/ComplexityLevels.pdf

HYPERLINK/REFERENCE TO APPLICABLE CRITERIA:

● General Criteria ● Approach to Financial Ratios

● Consolidation of Companies ● Services Sector

Analytical Contacts

Swarn Saurabh Saakshi Kanwar

Assistant Manager - Ratings Associate Director - Ratings
Board: +91 80 4040 9940 Board: +91 80 4040 9940
swarn.s@brickworkratings.com saakshi.k@brickworkratings.com

1-860-425-2742 | media@brickworkratings.com

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 SRI KAUVERY MEDICAL CARE (INDIA) LIMITED

ANNEXURE I
Details Of Bank Facilities Rated By BWR
Sl. No. Name of the Type of Facilities Long Term Short Term Total
Bank (Rs. Crs.) (Rs. Crs.) (Rs. Crs.)

1 Cash Credit 25.50 - 25.50

2 SBI Term Loans 207.24 - 207.24

3 GECL 8.36 - 8.36

4 Cash Credit 11.00 - 11.00

HDFC Bank
5 Term Loans 199.94 - 199.94

6 Yes Bank Term Loans 4.86 - 4.86

TOTAL - Rupees Four Hundred and Fifty Six Crores and Ninety Lakhs Only 456.90

Note: Besides the facilities mentioned above, the company has vehicle loans from SBI and HDFC Bank
outstanding at Rs. 2.57 Crs. as on 31Jul2022 not being rated by BWR at the company’s request.

ANNEXURE II
List of Entities Consolidated
Name of Entity % Ownership Extent of Consolidation Rationale for
Consolidation

KMC Speciality Hospitals (India) 75% Full Subsidiary

Limited

Healthcare Capital Private Limited 100% Full Subsidiary

Kauvery Hospital Medical Services 60% Full Subsidiary

Private Limited

Curtis Drug Point Private Limited 100% Full Subsidiary

Hamsa Medical Services Private 51% Full Subsidiary

Limited

Kauvery Hospitals (Bengaluru) 100% Full Subsidiary

Private Limited

Neuberg Ehrlich Laboratory Private 26% Equity Method Associate

Limited

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