The outlook revision reflects the better than expected performance of KIMS in FY21 despite the pandemic and expectations that the company will continue to sustain its healthy business performance over the medium term, supported by established market position in Telangana and Andhra Pradesh, improving occupancy levels, and sound operating efficiencies. Besides, CRISIL Ratings expects that healthy cash generation and management's philosophy to prudently fund capital expenditure (capex), will enable KIMS to maintain comfortable debt metrics, even as it enhances its geographic presence in newer territories.

The outbreak of Covid-19 in mid-March 2020 led to a severe decline in elective surgeries and preventive healthcare treatment for most players until June 2020. However, KIMS was impacted lower than most peers, as the Covid-19 impact was felt later in Andhra Pradesh and Telangana, which allowed KIMS to gear up its facilities to treat covid-19 impacted and non-covid patients. This also benefitted its occupancy levels and enabled KIMS to register an 18% growth in revenues. This along with tight control over costs, and the continuing doctor-partnership model, enabled the company to report healthy operating margins of 28.5% in fiscal 2021 (22.6% in fiscal 2020).

The financial risk profile remains healthy marked by sizeable net worth (Rs.759 crore on March 31, 2021, benefitting further from a recent Rs. 200 crore equity raise) and comfortable debt protection metrics. Interest cover was over 10 times and the ratio of debt to earnings before interest, tax, depreciation and amortisation (EBITDA) was 0.83 times in fiscal 2021. Despite steady organic and strategic inorganic expansions, KIMS' management has demonstrated a track record of maintaining prudence in its expansion plans as reflected in the company's low debt levels. In June 2021, KIMS completed its Initial Public Offering (IPO) to provide a partial exit to its private equity investor, General Atlantic (stake reduced to 17% from 43.9%), while its promoters also partly diluted their stake (by 8% to 38.8%). About Rs.200 crores was raised by the company, which was largely used to retire debt.

Over the next 3-4 years, KIMS may undertake a moderately aggressive capex of over Rs.1000 crores to expand into adjacent geographies in South India, and other states, which may involve part debt funding. However, debt metrics will remain comfortable, supported by a healthy annual cash generation of over Rs.300 crores. Peak gearing and debt/EBITDA are estimated at less than 0.5 times and ~1-1.10 times in fiscal 2023.

The rating continues to reflects the KIMS group's established market position in Telangana and Andhra Pradesh through its network of nine hospitals under the "KIMS Hospital" brand, its sound operational efficiencies as reflected in improving in occupancy and Average Revenue per Bed per Day (ARPOBD), also leading to good profitability. The ratings are also supported by the company's healthy financial risk profile and adequate liquidity. These strengths are partially offset by high dependence on flagship hospitals in Secunderabad for revenues and profits, modest geographical concentration of its hospitals, and regulatory risks associated with the hospital sector.