Rationale

 The ratings take into account Aster DM Healthcare Limited's (Aster/the Group/the company) established market position in the healthcare industry across Gulf Cooperation Council (GCC) countries and its growing presence in India. The ratings are also supported by the Group's diversified revenues from various healthcare segments such as hospitals, clinics and pharmacies. The debt protection indicators remained comfortable in FY2021, backed by prudent working capital measures, scheduled term loan repayments and healthy cash accruals, despite the operations being impacted by the Covid-19 pandemic. As on March 31, 2021, the gearing and net debt/adjusted OPBDITA (excluding IndAs-116 effect) stood at 0.7 times and 3.0 times, respectively, (0.9 times and 3.1 times, respectively, as on March 31, 2020). The ratings, however, remain constrained by the low return indicators in the Indian operations due to the capital-intensive model (most hospitals in India are owned whereas almost all hospitals in the GCC are leased) and the relatively initial stage of operations of some of the hospitals in India. The ratings also consider the regulatory and country-specific risks with regard to the Group's organisational structure and operations in the GCC segment, which generated around 81% of the consolidated revenues and 85% of the consolidated OPBITDA in FY2021. Its operations in the GCC are exposed to a challenging competitive landscape as well as regulations with respect to foreign ownership restrictions. That said, ICRA notes that recent announcements by the United Arab Emirates (UAE) government, allowing 100% ownership by foreign shareholders in approved sectors (including healthcare), help mitigate such concerns to some extent. In FY2021, revenues remained largely flattish despite the operations being impacted by the pandemic. Aster witnessed a weak Q1 FY2021 as elective surgeries were deferred and inpatient volumes declined on account of the lockdown and the associated restrictions. In H2 FY2021, revenues were supported by the increase in patient volumes. In FY2021, Aster's operating margin declined to 12.3% from 14.5% in FY2020 primarily due to the lower scale of operations in Q1 FY2021, higher fixed costs for running the newly set-up hospitals, and higher costs towards purchasing personal protective equipment (PPE) kits among others. Further, GCC Clinics and the pharmacy business witnessed lower footfalls during the entire period due to lockdowns in some of the countries coupled with frequent travel bans. This led to lower profit margins. The Stable outlook reflects ICRA's expectations that the Group's track record and diversification across segments and geographies will help mitigate the impact of external circumstances such as the pandemic to some extent. Moreover, the Group has adopted various cost reduction measures and has restructured the fees of doctors and other staff as well as the salary range of other employees in FY2021. Most of these measures are expected to be sustained in the long term, aiding the company's profit metrics.