Rationale

 For arriving at the rating, ICRA has taken a consolidated view of Chennai Fertility Centre and Research Institute, CFC Pharmacy and Novazion Pharmaceuticals (collectively referred to as CFC/the firm), given the common promoter/management and significant operational and financial linkages among them. The assigned rating factors in CFC’s established business in the fertility space, vast experience of the promoters in the industry and its strong operating margin profile. CFC’s credit profile is expected to be supported by the favourable demand outlook for the In vitro fertilisation (IVF) industry in India and consequent improvement in accruals and debt metrics expected, in the absence of significant debt-funded capex plans over the medium term. The company’s operating margins were strong at 43.7% in FY20241 (PY: 34.3%), broadly in line with the margins of other industry players. This has resulted in accruals of Rs. 13-15 crore per year in the last two years. While CFC’s Debt/OPBITDA stood at 2.0 times in FY2024 (PY: 2.6 times) and the interest coverage ratio was 3.3 times for the same period (PY: 4.1 times), the firm’s coverage metrics are also likely to improve over the medium term. The demand outlook for the IVF industry remains favourable in India, with several factors such as rise in the trend of late marriages, increased pregnancy age, rising infertility rate, higher awareness on infertility treatment and technological advancement leading to an increased success rate for the IVF treatment. Further with increasing regulations in the industry, there is a demand shift expected towards organised players, which could benefit players like CFC. However, the ratings are constrained by CFC’s modest scale of operations with revenues of Rs. 89.4 crore in FY2024. The firm remains exposed to event-based risks emanating from pending litigations against one of the promoters, Dr V.M. Thomas. Further, CFC is exposed to the risks related to a partnership firm, including the capital withdrawal risk. There have been withdrawals in the range of Rs. 3-4 crore in FY2023 and FY2024. Like other players, CFC is exposed to the regulatory risks inherent to the industry. Also, the Indian IVF industry isintensely competitive, and CFC faces competition from both specialised IVF players as well as multi-speciality hospital chains, that offer fertility services. The ‘Stable’ outlook on the long-term rating reflects ICRA’s expectation that the firm will be able to sustain its credit profile benefitting from its established position and favourable demand outlook for the IVF industry going forward.