Press Release

Max Healthcare Institute Limited

November 04, 2020
Ratings
Amount
Facilities Rating1 Rating Action
(Rs. crore)
CARE A Continues to be on
(Under Credit watch with Developing Credit watch with
Long Term Bank
428.03 Implications) Developing Implications
Facilities
(Single A) (Under Credit watch with
Developing Implications)
CARE A1 Continues to be on
(Under Credit watch with Developing Credit watch with
Short Term Bank
0.76 Implications) Developing Implications
Facilities
(A One) (Under Credit watch with
Developing Implications)
428.79
(Rs. Four Hundred
Total Facilities
Twenty-Eight Crore and
Seventy-Nine Lakhs Only)
Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers

CARE has changed its analytical approach in the current review while arriving at the ratings of Max Healthcare Institute
Limited (MHIL). Now, CARE has analyzed MHIL on a consolidated basis as against the earlier combined view of Max
Healthcare (MHC) network of hospitals which included MHIL consolidated financials and the trusts’ (Devki Devi Foundation,
Baljai Medical & Diagnostic Research Centre, and Gujarmal Modi Hospital & Research Centre). Change in the analytical
approach is purely on account of revised criteria adopted by CARE Ratings for the rating of debt. As per the revised criteria, a
listed entity cannot be combined with other listed/non-listed entities to arrive at the ratings for a group of entities/entity on
a combined approach & hence they have to be analysed as a separate entity and not combined with other entities of the
group.

The rating reaffirmation of MHIL continues to derive strength from its resourceful promoter, established and leading market
position, diversification across various specialties, experienced team of doctors, modern infrastructure, and the strong brand
equity of Max Healthcare. Further, the operational parameters of MHIL have consistently improved during the past couple of
years and have also demonstrated resilience during lockdown due to Covid-19 and the current stringent regulatory
environment. The ratings also take into cognizance improvement in the financial profile of the MHIL during FY20 backed by
consistent improvement in the PBILDT margins.
The strengths are partially offset by an expected increase in debt in the medium term for certain committed debt-funded
plans likely to have an adverse impact on the leverage levels of MHIL, exposure to regulatory risk, and competition from
other established players in the Delhi and NCR region.

The credit watch earlier was on account of the announcement of stake sale of Life Healthcare and divestment of promoter
stake in MHIL to Radiant Life Care Private Limited (RLCPL). Post-merger (effective from June 01, 2020) Kohlberg Kravis
Roberts & Co. (KKR) through Kayak Investments Holding Pte. Ltd holds around 52% stake while Mr. Abhay Soi holds around
23% stake in MHIL as on Sept 20, 2020. The merger has provided MHIL increased scale and geographical diversification,
however, it has also led increase in the leverage of the merged entity.
The ratings continue to be on credit watch with developing implications on account of expected equity infusion in the
company.

Key Rating Sensitivity

Positive factors
 Increase in operating income above Rs. 3300 crore and PBILDT margins above 20% on a sustained basis.
 Improvement in overall gearing below 1x and Total debt/PBILDT below 2.5x on a sustained basis
Negative factors
 Decline in profitability below 12.5% on a sustained basis
 Increase in overall gearing above 1.5x

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications.
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Conclusion of the merger effective from June 01, 2020

As per the “Outcome of Board Meeting” posted by Max India Limited on BSE on December 24, 2018, the board had approved
a composite scheme of amalgamation and arrangement amongst Max India Limited, Max Healthcare Institute Limited,
Radiant Life Care Private Limited and a wholly owned subsidiary of MIL (Advaita Allied Health Services Limited). As a part of
the scheme Radiant (backed by KKR) purchased the stake of Life Healthcare (49.70%) in MHIL in June, 2019. KKR also
acquired an additional stake of 4.99% in the Merged Entity from Max Promoters in September 2020.
Based on the share exchange ratio recommended in the valuation report, the resultant shareholding of the Combined Entity
is 51.9%, 23.2% and 7.0% by KKR, Mr. Abhay Soi and Max Promoters respectively, with the balance being held by public and
other shareholders.
Post composite scheme, MHIL will become compliant to minimum public shareholding of 25% within a period of one year
from the date of listing (Aug 21, 2020) of its equity shares or as prescribed under applicable regulations.

Key Rating Strengths

Resourceful promoter group and experienced management team
With the conclusion of the merger on June 01, 2020; the erstwhile MHIL promoters have been reclassified as public
shareholders, and Mr. Abhay Soi and KKR (through Kayak Investments Holding Pte. Ltd) have now become the promoters of
MHIL.
Mr. Abhay Soi is the Promoter, Chairman, and Managing Director of MHIL. Before the acquisition and merger with MHIL, Mr.
Soi was the Promoter, Chairman, and Managing Director of Radiant Life Care Private Limited (RLCPL). Mr. Soi forayed into
healthcare space in 2010 and is credited for successfully revamping RLCPL healthcare facilities i.e. Dr BL Kapur Memorial
hospital, Delhi (BLK) & Dr Balabhai Nanavati hospital, Mumbai (Nanavati). Both of these hospitals have now come under the
MHIL umbrella post-merger. He has experience in financial restructuring business and exposure of various industries like
mining, financial services, textiles, and specialty chemicals etc.
KKR & Co. Inc. (formerly known as Kohlberg Kravis Roberts & Co. and KKR & Co. L.P.) is an American global investment
company that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate, credit,
and, through its strategic partners, hedge funds. KKR through Kayak Investments Holding Pte. Ltd holds 52% shareholding in
MHIL as on Sept 20, 2020. KKR has invested around Rs.2,000 crore in erstwhile Radiant for the acquisition of MHIL.
The board of directors includes Mr. U K Sinha, former Securities and Exchange Board of India (SEBI) chairman along with Mr.
Micheal Neeb, former President of HCA Healthcare - the largest hospital operator in the United States. They have been
appointed as independent directors. Besides, Mr. Sanjay Nayar, Chief Executive Officer (CEO) of KKR (India) is the non-
executive director.

Established and leading market position driven by strong brand equity

MHIL started its operations in 2001 and has established itself as a leading market player in the Northern India region. After
the completion of the merger, MHIL operates 16 facilities in India (including three trusts where it has medical service
agreement), offering services in over 32 medical disciplines. Out of the total network, eight hospitals and four medical
centers are located in Delhi and the NCR, and the others are located in the cities of Mumbai, Mohali, Bathinda, and
Dehradun. The average occupancy has been around 70% over the last couple of years driven by strong brand equity and
MHIL’s acceptability among the patients
All the hospitals are National Accreditation Board for Hospitals & Healthcare Providers (NABH) and ISO accredited and have
also received Joint Commission International (JCI) accreditation for two of its hospitals which will help MHIL expand its
international business further.

Experienced team of doctors

The operations of the company are well supported by a team of experienced doctors, nurses, and paramedic staff. The
doctors on board are well qualified and have relevant experience. The group (including 3 trusts) has around 2200+ doctors,
5300+ nurses, and 1000+ consultant physicians on board to service its patients as on June 30, 2020.

Diversification across various specialties and improving channel mix

MHIL derives its revenues from several specialties including cardiology, oncology, neurology, orthopedic, etc., thus not
depending upon any single specialty. Among the various specialties, oncology, cardiac, neurology has demonstrated healthy
growth during the last year.
The MHIL also has a well-diversified channel mix which includes cash, TPA & corporates, institutions, referrals, and
international business. MHIL derived 23.95% (PY: 22.83%) of its total FY20 revenue from the Institutional/PSU segment which
is a low margin business. The company plans to reduce the contribution from this segment and focus more on international
business going forward.

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Healthy operational parameters with consistent improvement during the past couple of years
Operational parameters of the hospital as indicated by occupancy rate, average revenue per occupied bed (ARPOB), average
length of stay (ALOS), inpatient-outpatient registrations, average revenue per occupied bed etc have consistently improved.
The number of operational beds on a consolidated basis for MHIL has increased from 1,256 in FY16 to 1,391 in FY20 which
have further increased to 2,258 after the merger with RLCPL as on June 30, 2020. In FY20, occupancy of MHIL stood at 71.5%
(PY: 70.2%) and the average revenue per occupied bed (ARPOB) has also increased to Rs. 50,448 (PY: 45,447) driven by
growth in IP admissions by 4.5% and OP registrations by 5.2%.

Improvement in the financial risk profile

The financial profile continued to improve in terms of income, profitability, and other solvency parameters during FY20. The
total income witnessed a growth of 11.8% during FY20 from Rs. 1743 crore in FY19 to Rs.1948 crore in FY20 on account of
better operational performance during the year. MHIL also reported a significant improvement in PBILDT margin by 621 bps
during FY20 by posting a PBILDT margin of 18.12% (PY: 11.91%) led by various cost-cutting measures. The overall gearing of
MHIL also improved to 0.90x as on March 31, 2020 as against 1.45x as on March 31, 2019 along with improvement in the
interest coverage ratio during FY20 to 2.31x (FY19: 2.05x) and the total debt to GCA to 5.21x (FY19: 10.06x). During Q1FY21,
MHIL has reported revenue of around Rs.400 crore with PBILDT loss of around Rs.20 crore primarily on account of the impact
of Covid-19.

Key Rating Weakness

Exposed to regulatory risk
MHIL operates in a regulated industry that has witnessed continuous regulatory intervention during the past couple of years.
Regulations such as capping of stent prices and knee implants and stricter compliance norms have adversely impacted the
margin of the company in past. Any such future regulation might have an adverse impact on the group’s profitability and thus
would remain an important monitorable.

Expected increase in debt in the medium term for certain committed debt-funded plans
MHIL does not plan to undertake any new greenfield projects; however, would continue increasing its bed capacity going
forward (around 700 beds during FY21-25). MHIL is also in the process to acquire the remaining stake in the two acquisitions
it had done in FY16. The stake purchase will be around Rs.586 crore while capex (including routine capex) for the next five
years is expected to be around Rs. 2214 crore. MHIL has plans to raise Rs. 1000 cr through a Qualified institutional placement
(QIP) which is inter-alia expected to be utilised towards pre-payment of the existing debt and funding of capex. Any further
increase in debt above the envisaged level will have an adverse impact on the debt metrics of MHIL and will be a key
monitorable.

Favourable industry outlook however intense competition from other established players
The population growth, increase in lifestyle-related diseases, the rising purchasing power of the middle class, and higher
awareness of chronic illnesses will be the key growth drivers for the sector. Although there is increasing competition in the
sector; however, comfort is drawn from the sizeable presence and established position of Max Hospitals. Going forward,
MHIL’s prospects would depend upon its ability to improve its profitability, continued scale-up of operations, and to manage
the competitive pressures in the sector.

Liquidity: Adequate
MHIL’s liquidity profile is adequate given its healthy cash accruals as against its moderate debt repayment. On a combined
entity basis MHIL reported GCA of around Rs.256 crore (MHIL Consol GCA Rs.205 crore + RLCPL GCA Rs.52.32 crore) during
FY20 against which the total scheduled debt repayment for FY21 stands at around Rs.67.29 crore. The working capital
utilization has also remained comfortable during the last 12 months ending July 2020 at ~ 23%. Besides these, MHIL also has
free cash and bank balance of around Rs.356 crore as on August 31, 2020. MHIL has availed moratorium as per RBI COVID-19
guidelines.

Analytical approach: Consolidated

A combined approach was being followed earlier in which combined financials of MHC network of hospitals which includes
MHIL consolidated financials and the trusts (Devki Devi Foundation, Baljai Medical & Diagnostic Research Centre, Gujarmal
Modi Hospital & Research Centre) financials were considered.
Now, CARE has changed its analytical approach to a consolidated basis on account of revised criteria adopted by CARE ratings
for rating of debt. The list of entities consolidated is given below:

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Name of Entity % Ownership Relation with MHIL as on March 31, 2020

Max Healthcare Institute Limited - -
Alps Hospital Limited (ALPS) 100% Subsidiary
Crosslay Remedies Limited 81.96% Subsidiary
Hometrail Buildtech Private Limited 100% Subsidiary
Saket City Hospitals Private Limited 57.29% Subsidiary
Dr BL Kapur Memorial Hospital* Trust Operation & Management Agreement
Dr Balabhai Nanavati Hospital* Trust Operation & Management Agreement
*MHIL (earlier RLCPL) has O& M agreement Dr BL Kapur Memorial Hospital and Dr Balabhai Nanavati Hospital wherein MHIL
will operate, manage and provide medical services. As per Ind-AS, the financials of BLK and Nanavati will be consolidated due
to presence of control. Both the aforementioned hospitals will be consolidated from Q2FY21 onwards.

Applicable Criteria
Criteria on assigning Outlook to Credit Ratings
CARE’s Policy on Default Recognition
CARE’s methodology for Services Companies
Rating Methodology: Factoring Linkages in Ratings
CARE’s methodology for financial ratios (Non-Financial Sector)
CARE’s methodology for Hospitals

About the Company

Max Healthcare Institute Limited (MHIL) was incorporated in 2001 and operates/ provides medical services to 16 facilities
under its umbrella with around 3,400 bed capacity as on September 2020. Out of the total network, eight hospitals and four
medical centres are located in Delhi and the NCR, and the others are located in Mumbai, Mohali, Bathinda, and Dehradun.
Through a composite scheme of merger, Radiant Life Care Private Limited’s (RLCPL) health care assets (2 hospitals i.e. Dr BL
Kapur Memorial Hospital & Dr Balabhai Nanavati Hospital) have merged in MHIL effective from June 01, 2020. Further, MHIL
got listed on August 21, 2020.
Brief Financials (Rs. crore) – MHIL Consolidated FY19 (A) FY20 (A)
Total income 1742.64 1948.27
PBILDT 207.55 353.11
PAT -0.19 95.34
Overall gearing (times) 1.45 0.90
Interest coverage (times) 2.05 2.31

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating History for last three years: Please refer Annexure-2

Annexure-1: Details of Instruments/Facilities

Name of the Date of Coupon Maturity Size of the Issue Rating assigned along with Rating Outlook
Instrument Issuance Rate Date (Rs. crore)
Fund-based - LT-Term - - November 330.58 CARE A (Under Credit watch with
Loan 2031 Developing Implications)
Fund-based - LT- - - - 97.45 CARE A (Under Credit watch with
Working Capital Limits Developing Implications)
Non-fund-based - ST- - - - 0.76 CARE A1 (Under Credit watch with
BG/LC Developing Implications)

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Annexure-2: Rating History of last three years

Sr. Name of the Current Ratings Rating history

No. Instrument/Bank Type Amount Rating Date(s) Date(s) & Date(s) & Rating(s) Date(s) & Rating(s)
Facilities Outstanding & Rating(s) assigned in 2018- assigned in 2017-2018
(Rs. crore) Rating(s) assigned in 2019
assigned 2019-2020
in 2020-
2021
1. Fund-based - LT- LT 330.58 CARE A - 1)CARE A 1)CARE A (Under 1)CARE A+ (Under
Term Loan (Under (Under Credit Credit watch Credit watch with
Credit watch watch with with Developing Developing
with Developing Implications) Implications)
Developing Implications) (03-Jan-19) (14-Dec-17)
Implications) (09-Oct-19) 2)CARE A (Under 2)CARE A+; Stable
Credit watch (28-Nov-17)
with Developing 3)CARE A+; Stable
Implications) (06-Oct-17)
(05-Oct-18)
2. Fund-based - LT- LT 97.45 CARE A - 1)CARE A 1)CARE A (Under 1)CARE A+ (Under
Working Capital (Under (Under Credit Credit watch Credit watch with
Limits Credit watch watch with with Developing Developing
with Developing Implications) Implications)
Developing Implications) (03-Jan-19) (14-Dec-17)
Implications) (09-Oct-19) 2)CARE A (Under 2)CARE A+; Stable
Credit watch (28-Nov-17)
with Developing 3)CARE A+; Stable
Implications) (06-Oct-17)
(05-Oct-18)
3. Non-fund-based ST 0.76 CARE A1 - 1)CARE A1 1)CARE A1 1)CARE A1+ (Under
- ST-BG/LC (Under (Under Credit (Under Credit Credit watch with
Credit watch watch with watch with Developing
with Developing Developing Implications)
Developing Implications) Implications) (14-Dec-17)
Implications) (09-Oct-19) (03-Jan-19) 2)CARE A1+
2)CARE A1 (28-Nov-17)
(Under Credit 3)CARE A1+
watch with (06-Oct-17)
Developing
Implications)
(05-Oct-18)

Annexure- 3: Complexity level of various instruments rated for this Company

Sr. No. Name of the Instrument Complexity Level

1. Fund-based - LT-Term Loan Simple
2. Fund-based - LT-Working Capital Limits Simple
3. Non-fund-based - ST-BG/LC Simple

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This
classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write
to care@careratings.com for any clarifications.

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 Press Release

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