Press Releases     20-Jun-24
Christian Medical College Vellore Association: Ratings reaffirmed

Rationale

 The reaffirmation of ratings on the bank lines of Christian Medical College Vellore Association (CMC/the Trust) considers ICRA’s expectation of a sustained financial performance in the near to medium term, supported by its strong business profile and liquidity position. CMC has strong brand equity, with presence for over 100 years, and is a reputed healthcare provider in Vellore (Tamil Nadu), attracting patients from across the country. It derives revenues from over 120 specialties including Hematology, Oncology, Gastroenterology and Neurology. Further, its medical college offers over 110 courses and has been consistently ranked among the top three medical colleges in India by the National Institutional Ranking Framework (NIRF) of Ministry of Human Resource Development, for the last several years. CMC provides education services at subsidised fees compared to other private players. Further, it provides concessional/free services, as part of its initiative to provide quality healthcare to the underprivileged; free services constituted 13.8% of revenues in FY2024. All these have restricted margin expansion over the years. CMC’s operating margins, in addition, were impacted by the sub-optimal occupancy levels (63.8% in FY2024 as against 69.1% in FY2023 and 74.8% pre-Covid) and moderated to 6.5% in FY2024 from 12.2% in FY2023. The lower operating margins have cascaded into net losses of Rs. 17.8 crore in FY2024. While margins are expected to increase going forward from FY2024 levels with higher occupancy and better absorption of fixed overheads from the new facility, they are expected to remain below the industry peers, given the focus on free work and the subsidised fees for the medical college. CMC’s revenues have witnessed a compounded annual growth rate of 10.4% in the last five years (revenues of Rs. 2,434.9 crore in FY2024), aided by enhanced bed capacity, increasing complexity of treatments/surgeries and inflation in treatment costs. The Trust has had healthy annual accruals of close to Rs. 200.0 crore per year, in the last five years (barring FY2021, which was impacted by the Covid-19 pandemic), and this, along with periodic donation receipts has resulted in healthy capital structure (net gearing of 0.2 times as on March 31, 2024) and coverage metrics (DSCR of 2.6 times for FY2024), despite the recent debt-funded capex undertaken. While the Net Debt/OPBDITA has moderated to 2.0 times as on March 31, 2024 (PY: 0.9 times) because of debt funded capex for the new facility at Ranipet and lower operating profits in FY2024 due to weaker absorption of fixed cost. However, it is likely to improve going forward, supported by favourable demand outlook, better operating leverage and fixed cost absorption as occupancies ramp-up. CMC’s liquidity position remains strong, supported by its healthy cash accruals and sizable cash and bank balance of Rs. 557.7 crore as on March 31, 2024. The demand outlook for the healthcare sector remains favourable supported by structural factors including rising lifestyle diseases, technological advancements supporting early diagnosis and treatment, increasing medical tourism and health awareness, under-penetration of healthcare services amid population increase, widening medical insurance coverage and better affordability by virtue of increasing per capita income. These augur well for CMC and provide revenue visibility over the medium term, despite the competition in the healthcare industry. However, CMC’s moderately high geographic concentration is expected to continue, although footfalls of patients from multiple states across India mitigates the risk to an extent. The stable outlook on CMC’s long-term rating reflects ICRA’s expectations that the Trust will be able to sustain its credit profile, supported by favourable demand outlook and healthy accruals, strong liquidity and absence of any large debt-funded capex plans over the medium term.

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