Rationale

 The rating action continues to consider Kids Clinic India Ltd.'s (Kids Clinic/the company) established position and strong brand equity in the mother and baby care segment under the brand name, “Cloudnine”, in addition to its improving geographical presence with 34 centres across multiple cities in India. The ratings also favourably factor in the incremental equity infusion of ~Rs. 359 crore from Temasek Holdings and NewQuest Capital in Q4 FY2024. ICRA also notes that the company had earlier repaid a large portion of its outstanding term loans in FY2024 through equity proceeds received in FY2023, thereby strengthening its debt coverage indicators. On a consolidated basis, during FY2023, the company witnessed strong YoY revenue growth of 26.3% at Rs. 946.7 crore. On a standalone basis, the company’s revenues stood at Rs. 837.2 crore during 9M FY2024. The company’s operating margins stood at 13.8% in 9M FY2024 against 14.3% in FY2023 on account of losses from new centres opened in Q4 FY2023 and 9M FY2024. Going forward, the margins are expected to moderate in FY2025 due to OPBDITA losses from new centres that commenced in FY2024 and new centres that are expected to commence operations from FY2025. The margin trajectory of the company amid the ongoing expansion remains a key monitorable. The rating strengths are, however, partially offset by the company’s sizeable capex plans of ~Rs. 280-300 crore towards setting up new centres in FY2025. While the capex is expected to be funded through recent equity infusion and internal accruals, sizeable lease liabilities are expected to be added to the company’s overall debt, going forward. Timely commencement of the planned new units without any cost overruns and impact of losses from new centres on the company’s operating margins would remain a key rating monitorable. Further, ICRA notes that the company’s RoCE remains constrained largely by lower profitability/losses in new centres given the ongoing continuous expansion. The company operates in a niche segment, focusing primarily on maternity care, obstetrics, fertility and gynaecology as well as paediatrics, with limited diversification across specialities. However, the company differentiates itself from other multi-speciality providers with its focus on improving the overall experience of the patients. Any significant debt-funded capex or acquisition, which could impact the credit profile, will be considered as a material event and be evaluated on a case-to-case basis. The Stable outlook on the long-term rating reflects ICRA’s expectations that Kids Clinic will continue to benefit from its strong brand equity in the maternity and paediatric segment, supporting its healthy revenue growth over the near term.