CRISIL revises outlook for Metropolis Healthcare's ratings to 'Stable'

Metropolis Healthcare Limited (MHL) has seen its long-term bank facilities and Non-Convertible Debentures (NCDs) ratings outlook revised from 'Positive' to 'Stable' by CRISIL Ratings. The long-term rating has been reaffirmed at 'CRISIL AA-', and CRISIL Ratings has also reassigned a 'CRISIL A1+' rating to the proposed working capital facility.

Key Points of CRISIL's Rating Update:

Change in Outlook: CRISIL Ratings has revised the outlook on MHL's long-term bank facilities and NCDs to 'Stable' from 'Positive.'

Long-term Rating: The long-term rating remains 'CRISIL AA-'.

Working Capital Facility: A 'CRISIL A1+' rating has been assigned to the proposed working capital facility.

The rating update is attributed to several factors, including a reduction in the scale of operations due to a decline in revenues from COVID and allied segments, a decrease in the B2B segment, and increased fixed costs following recent expansions. These developments have impacted operating margins and return on capital employed (ROCE), which were expected to improve previously.

Despite these challenges, MHL retains its position as a leading player in the Indian diagnostic services market, boasting a well-established brand and strong operating efficiency that results in robust cash flow. The company also maintains a strong financial risk profile with a solid capital structure and a proven track record from its promoters.

However, the ratings are partially offset by a high (though reducing) geographical concentration in revenue, market fragmentation, and moderate entry barriers in the diagnostics industry.

The impact of these rating adjustments reflects the moderation in MHL's operating income, which decreased by approximately 7% year-on-year to Rs. 1148 crore in fiscal 2023 due to a sharp decline in revenues from COVID and allied tests. Additionally, the loss of a significant contract with NACO in February 2023 further affected the revenue profile.

The B2B segment, while decreasing, still represents a significant portion of the company's revenue, leading to a longer receivables cycle. Nevertheless, the company has been actively reducing its reliance on this segment.

Metropolis Healthcare's strong market position and brand recognition, combined with its operational efficiency, continue to support its creditworthiness. The company's focus on addressing ESG (Environmental, Social, and Governance) risks also aligns with its strong credit profile.