Rationale

 The rating reaffirmation continue to reflect Narayana Hrudayalaya Limited's (NHL or NH Group) established position in the healthcare sector and the significant brand equity of the ‘Narayana Health' brand. The ratings also derive comfort from the geographically diversified presence of NH Group across India, with a strong presence in Karnataka and East India and the Group diversifying its operational specialties from cardiac care and renal sciences to oncology, neuro-sciences, orthopaedics and gastroenterology. The company also has a global footprint with the establishment of Health City Cayman Islands in North America, where the company is currently planning to set up an additional multi-speciality centre and a radiation oncology department. The rating takes into account the adequate liquidity profile of the company, with significant undrawn lines of credit and financial flexibility to avail additional limits, if required. However, the ratings are constrained by the impact of Covid-19 on the operations of the Group in FY2021. Owing to the lockdown in Q1, the Group reported operating losses in line with the significant drop in revenues. Despite gradual reopening during the unlock phase, continuing impact of Covid-19 pandemic in the form of reservation of bed capacities for Covid patients and restrictions on international travel constrained business operations in Q2 and Q3 as well. The flagship hospital units of the Group, which had been focussed on cardiac procedures, including for international patients, were most impacted by these disruptions. Nonetheless, the Group witnessed healthy recovery in operations at other units, which combined with sustained growth in revenue and profitability in the Cayman unit resulted in the break-even at OPBTIDA level in Q2FY2021 and recovery of OPBITDA to 94% of the previous year figure in Q3FY2021. Going forward, the restrictions on international travel are expected to constrain recovery in the flagship units to some extent; though the impact will be offset to a large extent by the strong performance in the Cayman unit. The ratings also take into account the regulatory risks associated with the sector, including any pricing restrictions. The Group has moderate return indicators and leverage levels, which had been improving over FY2019 and FY2020 until the Covid-19 pandemic broke out. Going forward, the Group plans to incur a significant greenfield capex in the Cayman Islands with estimated spend of around USD 93 million to be funded 50:50 by debt and internal accruals. Notwithstanding the strong growth in the profits from existing Cayman unit, leverage metrics are expected to weaken in the near to medium term until the new facility stabilizes and starts generating incremental profits. The stable outlook represents ICRA's expectation that the Group's diversified business operations and brand equity will support its financial profile, notwithstanding the continuing Covid-19 pandemic