TEXT-Fitch release on DMCH's bank loan facilities

(The following statement was released by the ratings agency)

July 28 - Fitch Ratings has today assigned a National Long-term Issuer rating of 'BBB+(ind)' to Dayanand Medical College and Hospital Managing Society (DMCH). At the same time, Fitch has assigned a rating of 'BBB+(ind)' to its term loans (amounting to INR55.6m) and cash credit limits (amounting to INR50m), as well as 'F2+(ind)' to its non-fund-based working capital limits (amounting to INR10m). The Outlook is Stable. DMCH's ratings reflect its ability to offer multi-speciality care through a strong team of medical professionals. They also take into consideration the stability of demand in the hospital business, strong growth in patient revenues over the last few years, the large single location for its operations, and the empanelment of DMCH by a large number of companies under their employee welfare schemes. DMCH offers various courses in nursing and medicine and has the distinction of being one of the few institutions in the country to offer Doctorate in Medicine (DM) course in five different specialties.

Primarily driven by strong growth in patient receipts, DMCH's revenue grew over FY06 (26.8), FY07 (22%) and FY08 (25.3%), reflecting its improving profitability and financial leverage over this period. DMCH has shown a robust jump in profitability with operating EBITDAR/revenue almost doubling to 14.7% in FY07 and further to 17% in FY08 from 7.7% in FY05. Its financial leverage (total adjusted debt/EBITDA of 0.2X at FY08 versus 2.5x at FY05) has also improved on account of the repayment of term loans combined with a significant increase in profits. Meanwhile, a reduction in the receivable collection period to 24 days in FY08 from 37 days in FY06 has helped to keep the debt levels under check by reducing the working capital requirements. Nonetheless, Fitch expects financial leverage to increase in FY09 due to projected capital expenditure for the expansion and modernisation of existing facilities, although it is likely to remain moderate.

The ratings are limited by DMCH's relatively small revenue base, limited ability to face competition from bigger healthcare chains and a relatively concentrated presence in Ludhiana. Although a close linkage between the activities of the hospital and college has resulted in a sustained supply of medical professionals at various levels, DMCH's ability to retain talent may be severely impacted with the emergence of large national hospital chains in surrounding areas. Fitch notes that its operations have been affected in the past (particularly in FY05 when revenues declined by 3%) due to employee strikes, and similar labour union activities may arise in future thus disrupting operations.

Positive rating triggers would constitute either a significant increase in size through the expansion of service offerings, or geographical expansion with moderate levels of financial leverage. On the other hand, a decline in revenues and profitability on account of the attrition of medical professionals, employee strikes and a change in management may trigger a downward movement in its ratings.

DMCH, established in 1934 as a society for imparting medical education, was converted into a medical college and handed over to Arya Samaj in 1964. The Society currently manages the medical college with courses in nursing and medicine and multi-speciality hospital with a capacity of 1100 beds and inclusive of a heart institute. DMCH has medical facilities across twelve specialities namely neurosurgery, neurology, cardiology, urology, gastroenterology, nephrology, kidney transplant, oncology, endocrinology, plastic surgery, paediatrics and dentistry. DMCH registered revenue of INR 1323.9m in FY08, growth of 25.3% over FY07 revenues of INR 1058.8m. The net income stood at INR 163.4m in FY08 compared to INR 111.7m in FY07.