Krishna Institute of Medical Sciences Ltd:Annual Report 2023-24 Analysis

Krishna Institute of Medical Sciences Ltd: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Krishna Institute of Medical Sciences Limited (KIMS Hospitals) was established in 2004 by Dr. Bhaskar Rao Bollineni.

Headquarters Location and Global Presence: The headquarters are located in Hyderabad, India. While KIMS Hospitals primarily operates within India, it has plans for expansion within the South Asian region.

Company Vision and Mission: While the exact phrasing of the official vision and mission statements may vary, the core focus is on:

• Vision: To be a leading healthcare provider, recognized for clinical excellence, patient-centric care, and innovative healthcare solutions.
• Mission: To provide high-quality, affordable, and accessible healthcare services to the communities it serves.

Key Milestones in Their Growth Journey:

• 2004: Establishment of the first KIMS Hospital in Secunderabad.
• Expansion: Significant growth through establishing and acquiring multiple hospitals across Andhra Pradesh and Telangana.
• IPO: Successful Initial Public Offering (IPO) in 2021.

Stock Exchange Listing Details and Market Capitalization:

• Listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
• Market capitalization is subject to change daily based on stock performance. (Refer to financial websites for real-time data).

Recent Financial Performance Highlights: Review latest quarterly and annual reports to understand recent financial performance.

Management Team and Leadership Structure:

• Dr. Bhaskar Rao Bollineni is the Founder and Managing Director.
• The leadership structure consists of a Board of Directors and a management team responsible for various aspects of the company’s operations.

Any Notable Awards or Recognitions: Information on awards and recognitions received can be found on the KIMS Hospital website and annual reports.

Their Products #

Complete Product Portfolio with Categories: KIMS Hospitals offers a comprehensive range of medical services including:

• Clinical Specialties: Cardiology, Oncology, Neurology, Orthopedics, Gastroenterology, Nephrology, Pulmonology, Critical Care, and many others.
• Diagnostic Services: Radiology (MRI, CT Scan, X-ray), Pathology, and Laboratory Services.
• Surgical Services: General Surgery, Laparoscopic Surgery, Robotic Surgery, Transplant Surgery, and other specialized surgical procedures.
• Wellness Programs: Health check-up packages and preventive healthcare services.

Flagship or Signature Product Lines: KIMS Hospitals has gained recognition for its centers of excellence in:

• Cardiac Care: Comprehensive cardiac services including interventional cardiology and cardiac surgery.
• Oncology: Advanced cancer treatment options including medical oncology, surgical oncology, and radiation oncology.
• Organ Transplantation: Liver, kidney, and other organ transplantation programs.

Key Technological Innovations:

• Adoption of advanced medical technologies such as robotic surgery systems, advanced imaging equipment, and minimally invasive surgical techniques.
• Electronic Health Records (EHR) system for efficient patient data management.

Quality Certifications and Standards: KIMS Hospitals holds accreditations from:

• NABH (National Accreditation Board for Hospitals & Healthcare Providers).
• NABL (National Accreditation Board for Testing and Calibration Laboratories).

Primary Customers #

Target Industries and Sectors: Healthcare sector.

Geographic Markets (Domestic vs. International): Primarily focused on the Indian market, specifically in the states of Andhra Pradesh, Telangana, and other parts of South India.

Major Client Segments: General public seeking medical treatment, corporate clients for employee health benefits, and patients referred by other healthcare providers.

Major Competitors #

Direct Competitors in India:

• Apollo Hospitals Enterprise Ltd.
• Fortis Healthcare Ltd.
• Max Healthcare Institute Ltd.
• Narayana Hrudayalaya Ltd.
• Yashoda Hospitals.

Comparative Market Share Analysis: Market share data is dynamic and can be found in industry reports and financial analysis.

Competitive Advantages and Disadvantages:

• Advantages: Strong regional presence in South India, experienced medical professionals, established brand reputation, and focus on affordable healthcare.
• Disadvantages: Primarily concentrated in South India.

How They Differentiate from Competitors: Focus on delivering affordable and accessible healthcare, commitment to clinical excellence, and emphasis on patient-centric care.

Future Outlook #

Expansion Plans or Growth Strategy: Continued expansion through establishing new hospitals and acquiring existing healthcare facilities.

Sustainability Initiatives or ESG Commitments: Focusing on energy conservation, waste management, and community outreach programs.

Industry Trends Affecting Their Business:

• Increasing demand for healthcare services due to rising population and aging demographics.
• Growth of medical tourism in India.
• Technological advancements in healthcare.
• Government initiatives to improve healthcare access.
• Increasing health insurance penetration.

Long-Term Vision and Strategic Goals: To be a leading healthcare provider in India, known for clinical excellence, patient care, and innovation.

3-Year Trend Analysis of Key Financial Metrics #

• Revenue Growth: Consolidated revenue demonstrated growth, increasing by 12.9% from ₹22,235 million in FY23 to ₹25,112 million in FY24.
• EBITDA: EBITDA increased by 3.7%, from ₹6,299 million in FY23 to ₹6,534 million in FY24.
• PAT: Profit After Tax (PAT) decreased by 8.15%, from ₹3,658 million in FY23 to ₹3,360 million in FY24.
• ARPOB: Average Revenue Per Occupied Bed (ARPOB) increased by 6.6%, from ₹29,946 in FY23 to ₹31,916 in FY24.
• Inpatient (IP) & Outpatient (OP) Volumes: IP volumes grew by 7.9% and OP volumes by 9.9% in FY24.
• Debt-Equity Ratio: Increased from -2.09%(FY23) to 16.44%(FY24).
• Net Profit Ratio: Decreased, from 22.38%(FY23) to 19.28%(FY24).
• ROCE: Decreased, from 20.51%(FY23) to 14.57%(FY24).

Business Segment Performance #

• KIMS operates primarily in the medical and healthcare services sector, treated as a single business segment. No further segment-specific financial performance breakdown is available.

Major Strategic Initiatives and Their Progress #

• Geographic Expansion: KIMS is expanding into Maharashtra (Nagpur, Nashik, Thane) and Karnataka (Bengaluru). Nagpur operations commenced 15 months ago, Nashik is planned for August (300 beds), and Thane for December (300 beds). Bengaluru includes a Mahadevapura project (400 beds, March 2025) and an educational society tie-up (250+ beds).
• Capacity Expansion in Telangana: Bed capacity in Secunderabad is increasing from 1000 to 1500 beds. A new hospital is planned in Kondapur. Gachibowli (Sunshine Hospital) is being expanded, and Begumpet hospital was relocated in December 2023 for increased capacity.
• Service Expansion: Radiation oncology and Mother and Child Care (CUDDLES) services have been added, and there’s increased focus on government schemes like Aarogyasri and Ayushman Bharat.
• Acquistions: KIMS has acquired Queens NRI Hospital, a 200 bedded-hospital, in Vizag(July2024).
• Total additional beds: KIMS will be adding 1700 beds in the next two years.

Risk Landscape Changes #

• Financial Risk: Debt-EBITDA ratio is maintained up to 1.75. The debt-equity ratio is maintained below 0.75, but comfortable up to 1.0. 75% of expansion funding is from bank debt, and 25% from internal resources.
• Climate Justice: Increased focus on climate challenges, with climate safety regarded as a fundamental right. KIMS is adopting measures such as enhancing energy efficiency, reducing waste, adopting renewable energy sources, and preventive health measures.

ESG Initiatives and Metrics #

• Environmental: KIMS has implemented eco-friendly practices, including sustainable operations to reduce environmental impact. Water consumption decreased by 17.64%. Renewable energy consumed was 30,270 GJ. Waste generation was 192 MT.
• Social: CSR expenditure was ₹63.68 million. Initiatives include healthcare, education, skill development, women empowerment, and subsidized food. A fire station was built for the Telangana government. A mobile screening unit (MSU) was launched for cancer awareness and rural screening. 60,000+ CSR beneficiaries.
• Governance: Emphasis on transparent governance, ethical standards, and consistent operational and financial performance.

Management Outlook #

• Growth Focus: KIMS aims to penetrate adjacent markets, particularly in Maharashtra and Karnataka, leveraging proximity and existing operations.
• Financial Strategy: Maintaining a debt-equity ratio below 0.75 and debt-EBITDA up to 1.75. Cost optimization strategies include phased recruitment and leveraging existing facilities.
• Service Enhancement: Continuous investment in advanced medical technologies and digital services.
• Clinical excellence: KIMS aims to become a flagship in Clinical Excellence.

Detailed Analysis #

Financial Position Analysis #

Balance Sheet Analysis: 3-Year Comparative Analysis (Consolidated) #

(All amounts are in millions of Indian Rupees, except share data or unless otherwise stated)

Significant Changes in Major Line Items (>10% YoY) (Consolidated) #

• Non-Current Assets: Increased by 36.49% from FY23 to FY24, and increased by 38.33% the prior year. This is primarily due to increases in Property, Plant, and Equipment (including Capital Work-in-Progress), Right-of-use assets, and Goodwill.
• Capital work-in-progress: Increased from 4,769.34 (2023) to 6,000.93 (2024), and decreased from 4,769.34 (2023) to 1,933.22 (2022).
• Goodwill: Increased from 2,232.32 (2022) to 3,182.51 (2023), remaining stable in 2024.
• Right-of-use assets: Increased by 98.83%, indicating that the organization is leasing significantly more assets.
• Non-current Borrowings: Increased by 116.28%, driven by new term loans.
• Current Liabilities: Increased by 50.90% from FY23 to FY24.
• Other Equity: Increased by 16.84%.
• Non-Current Liabilities: Increased by 69.13%.

Working Capital Trends (Consolidated) #

• Working capital decreased significantly. This is primarily due to increases in short term borrowing.

Asset Quality Metrics (Consolidated) #

• Trade Receivables Aging (March 31, 2024):
  • Undisputed Trade Receivables - Considered Good: 3,483.55 (Total), with a breakdown showing a majority less than 6 months past due.
  • Allowance for Expected Credit Loss: 539.56

Debt Structure and Maturity Profile (Consolidated) #

• Debt Structure
  • Increased reliance on long-term debt is due to various new term loans from banks.
  • The increase is distributed to multiple subsidiaries like KHBPL, SMLPL, KHKPL, KHPL, and AHPL.
• Maturity Profile
  • Various maturity dates across different loans, ranging from short-term (working capital loans) to long-term (up to 2034 for some term loans).

Off-Balance Sheet Items (Consolidated) #

• Contingent Liabilities:
  • Guarantees issued on behalf of related entities: 5,360.57 (March 31, 2024), 5,842.66 (March 31, 2023).
  • GST and other legal/medical claims in dispute are present, but specific values have increased overall, in part because of subsidiary acquisitions.
• Commitments:
  • Capital commitments (contracts remaining to be executed): 1,609.31 (March 31, 2024), 4,411.88 (March 31, 2023).

Financial Performance Analysis - FY24 #

Revenue Breakdown #

• The Group operates primarily within a single business segment: medical and healthcare services.
• Geographically, operations are predominantly confined to India, with no individual customer contributing more than 10% of total revenue.
• Consolidated revenue for FY24 stood at ₹25,112 million, a 12.9% growth from FY23’s ₹22,235 million.
• Income from hospital services grew, and income from pharmacy was ₹7,466 million
• Income from hospital service for FY 24 stood at ₹16,820 million against 14,131 million in FY 23, registring a increase of 19.02%.
• ARPOB for FY 24 stood at H 31,916 against H 29,946 in FY 23, registering a increase of 6.6%.
• IP & OP volumes grew by 7.9% & 9.9% respectively.

Cost Structure Analysis #

• Major cost components include consultancy charges (₹5,238 million in FY24), employee benefits expense (₹4,048 million in FY24), and other expenses (₹9,204 million in FY24, which includes various operational costs).
• (Increase)/decrease in inventories impacts the cost, showing a positive impact of ₹118 million for FY24.

Margin Analysis #

• EBITDA stood at ₹6,535 million against H 6,299 Million in FY 23 recording a growth of 3.7%.
• PAT for the year stood at H 3,363 million against H 3,658 million in previous year FY 23 recording a decline of 8.15%.
• The management aims to maintain EBITDA margin of 25%+.

Operating Leverage #

• Operating leverage assessment is difficult without a fixed vs. variable cost breakdown. The presence of depreciation (₹1,429 million in FY24) and employee benefits indicates some fixed cost elements.

Non-Recurring Items #

• There were certain non-recurring income items, like gain on sale of mutual funds,profit on sale of property, plant and equpment.
• Acquisition and integration costs were recorded( acquisition of subsidiaries.
• Write off of loan to subsidiary.

EPS Analysis #

• Basic EPS for FY24 was ₹29.53; Diluted EPS was ₹29.53.
• Basic EPS for FY23 was ₹33.21; Diluted EPS was ₹33.21.

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, FCF Components #

Operating Cash Flow (OCF) Analysis #

• Profit before tax constitutes a major source, with Rs. 4,488 million for FY24 and Rs. 4,570 million for FY23.
• Depreciation and amortization significantly contribute, adding back Rs. 1,582 million in FY24.
• Finance cost is a significant element impacting, majorly.

Investing Cash Flow (ICF) Analysis #

• Significant cash outflow is consistently observed for the purchase of property, plant, and equipment, amounting to Rs. 6,350 million in FY24 and 4,189 million in FY23.
• Capital work in progress addition of Rs. 6,369 million in FY24.
• Investments in subsidiaries were material cash outflows.
• Proceeds from sales of property, plant, and equipment provide a minor inflow.

Financing Cash Flow (FCF) Analysis #

• Proceeds from long-term borrowings constituted significant cash inflow in FY24.
• Repayment of long-term borrowings is significant.
• Proceed from current borrowings/loan payable on demand are substantial.
• Payment for lease liabilities.

Working Capital Management Efficiency #

• Trade receivables turnover ratio decreased.
• Trade payables turnover ratio increased.
• Inventory turnover ratio shows slight improvement, increased from 9.71x to 11.21x.

Capex Analysis #

• Substantial year over year increases in additions to property, plant and equipment indicating aggressive expansion.
• CWIP additions are substantial, indicating ongoing projects.
• Capex is primarily focused on hospital infrastructure and medical equipment.

Dividend and Share Buyback Trends #

• The company has not declared/paid any dividend during the year.
• The company has not bought back any shares in last 5 year.

Debt Service Coverage #

• Debt service coverage ratio experienced a decrease.

Liquidity Position and Cash Conversion Cycle #

• The current ratio shows a decrease.
• Cash and cash equivalents show a increase at the end of FY24.
• Bank balances other than cash and cash equivalents also show a increase.

Financial Analysis: Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

ROE (Return on Equity) #

• FY24: 16.79%
• FY23: 22.38%

ROE has decreased from FY23 to FY24.

Margins #

Net Profit Margin #

• FY24: 19.28%
• FY23: 22.38%

Net profit margin has declined from FY23.

Liquidity Metrics #

Current Ratio #

• FY24: 1.2
• FY23: 1.7

The current ratio has decreased from FY23 to FY24.

Efficiency Ratios #

Inventory Turnover Ratio #

• FY24: 14.66
• FY23: 12.7

Inventory turnover ratio has increased.

Receivables Turnover #

• FY24: 6.79
• FY23: 8.12

Receivables turnover is decreasing.

Leverage Metrics #

Debt/Equity Ratio #

• FY24: 0.54
• FY23: 0.29

Debt/Equity ratio has increased significantly.

Working Capital Ratios #

Net Capital Turnover Ratio #

• FY24: 3.17
• FY23: 2.3

The working capital ratio is increasing.

Industry Comparison #

The provided financial data is that of a healthcare company, specifically hospitals.

KIMS Hospitals Business Segments Analysis #

Revenue and Profitability Metrics #

• Consolidated revenue for FY24 was ₹25,112 million, a 12.9% growth from FY23’s ₹22,235 million.
• EBITDA for FY24 was ₹6,534 million, a 3.7% growth from FY23’s ₹6,299 million.
• PAT for FY24 decreased by 8.15%, recording ₹3,360 million against FY23’s ₹3,658 million.
• Inpatient (IP) volumes grew by 7.9%, and Outpatient (OP) volumes grew by 9.9%.
• Average Revenue Per Occupied Bed (ARPOB) increased by 6.6%, reaching ₹31,916 in FY24 from ₹29,946 in FY23.
• KIMS reported its medical and healthcare service as a single business segment.

Market Share and Competitive Position #

• KIMS is a leading multidisciplinary integrated healthcare provider in South India, focusing on tertiary and quaternary healthcare.
• KIMS is Number 1 in Andhra Pradesh in Nephrology, Neurosurgery & Poly Trauma, Cardio-related surgeries, and Urology surgeries.
• KIMS runs one of the largest joint replacement program in south Asia.
• KIMS Has created robust neuroscience project for treating epilepsy.

Key Products/Services Performance #

• KIMS is a leader in organ transplantation (Heart, Lung, Liver, and Kidney) in South India.
• KIMS operates the largest ECMO program in India, with 18 machines.
• KIMS has the “largest in South Asia” joint replacement program and a neuroscience program for epilepsy treatment.
• KIMS achievements: First in the World ‘Mammography System’, First in Asia-Transcatheter Tricuspid Valve Replacement, First in India-COVID Double Lung transplant and Breathing Lung transplant.

Geographic Distribution and Market Penetration #

• KIMS operates across Telangana, Andhra Pradesh, and Maharashtra, with plans to expand into Karnataka.
• The healthcare provider operates 12 centers.
• KIMS is strategically growing in adjacent markets, focusing on Tier 2 cities within the Andhra Pradesh cluster.
• Plans include expansion into Nagpur, Nashik, and Thane in Maharashtra, and Bengaluru in Karnataka.

CAPEX and ROIC #

• Capital expenditure on tangible assets was- ₹6,137.53 (FY 2023-24) , ₹4,273.94(FY 2022-23).
• Capital Work in Progress was ₹6,000.93(FY 2023-24), ₹4,769.34 (FY 2022-23).
• Return on Capital Employed (ROCE) for FY24 was 14.57% against FY23’s 20.51%, declining by 28.95%.

Operational Efficiency Metrics #

• The Company is maintaining Debt-EBITDA ratio upto 1.75.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Expansion into new regions: Maharashtra (Nagpur, Nashik, Thane) and Karnataka (Bengaluru).
  • Capacity expansion in the Telangana cluster (Secunderabad, Kondapur, Gachibowli, Begumpet).
  • Increased focus on Oncology and Mother & Child Care.
  • Expanding services through government schemes like Aarogyasri and Ayushman Bharat.
  • Educational Society Tie-Up in Karnataka.
• Challenges:
  • Managing initial high fixed costs and lower margins in new hospitals until volumes increase.
  • Maintaining an overall EBITDA margin of 25%+.

Risk Assessment Framework #

Strategic Risks #

• Severity: High. Expansion into new regions (Maharashtra, Karnataka) and increased bed capacity represent significant capital outlay and market penetration challenges.
• Likelihood: Medium. The healthcare market is competitive.
• Trend: Increasing. Multiple semi-brownfield projects are underway (Nashik, Thane, Bangalore).
• Mitigation Strategies: Phased expansion, leveraging existing operational expertise, focusing on adjacent markets, collaborative projects with educational institutions.
• Control Effectiveness: Partially effective. Nagpur operations commenced 15 months ago, indicating some success, but new projects are still in progress.
• Potential Financial Impact: Substantial capital expenditure (INR 6,000.93 million in Capital Work-in-Progress as of March 31, 2024, up from INR 4,769.34 million in 2023). Failure to achieve projected occupancy rates and ARPOB in new facilities could lead to lower-than-expected returns and potential impairment of investments.

Operational Risks #

• Severity: Medium.
• Likelihood: Medium. Reliance on fixed salary and variable compensation for doctors.
• Trend: Stable.
• Mitigation Strategies: Phased recruitment to manage employee costs.
• Control Effectiveness: Partially effective. Employee benefit expenses increased from INR 3,337.69 million in FY23 to INR 4,000.52 million in FY24.
• Potential Financial Impact: Inability to recruit and retain, and doctor compensation model changes.
• Severity: Medium. Maintaining service quality across multiple facilities.
• Likelihood: Medium.
• Trend: Increasing. Expanding number of hospitals and specialties.
• Mitigation Strategies: Standardized clinical protocols, quality control measures, staff training.
• Control Effectiveness: Not directly measurable from the data.
• Potential Financial Impact: Customer Dissatisfaction.

Financial Risks #

• Severity: Medium.
• Likelihood: Medium. Maintaining a debt-equity ratio below 0.75 and debt-EBITDA ratio up to 1.75.
• Trend: Increasing. Total borrowings increased significantly from INR 5,155.72 million in FY23 to INR 10,705.97 million in FY24.
• Mitigation Strategies: 75% funding for expansions from bank debt, 25% from internal resources. Utilizing moratorium periods on debt repayment.
• Control Effectiveness: Partially effective. Net debt to equity ratio increased from -2.09% (standalone) / 28.54% (consolidated) in FY23 to 16.44% (standalone) /54.46% (consolidated) in FY24.
• Potential Financial Impact : Debt Management.
• Severity: Medium. Fluctuations in interest rates on variable-rate borrowings.
• Likelihood: High. Interest rates are subject to market forces.
• Trend: Increasing. Variable rate long-term and short-term borrowings totaled INR 10,705.97 million as of March 31, 2024.
• Mitigation Strategies: Not explicitly stated in the provided data.
• Control Effectiveness: Not directly measurable.
• Potential Financial Impact: 1% increase in MCLR will increase Profit and Loss, as stated in note 2.35 Financial instruments.

Compliance/Regulatory Risks #

• Severity: High. Changes in healthcare regulations, licensing requirements.
• Likelihood: Medium. The healthcare sector is heavily regulated.
• Trend: Stable. Ongoing compliance with SEBI regulations, pollution control, medical establishment, pharmacy licensing.
• Mitigation Strategies: Regular communication with regulatory bodies, reporting of adverse events.
• Control Effectiveness: Appears effective based on reported compliance.
• Potential Financial Impact: Medical and other claims pending, amount is not ascertainable.

Emerging Risks #

• Severity: Medium. Adoption of new medical technologies and digital health solutions.
• Likelihood: High. Technological advancements are rapid in healthcare.
• Trend: Increasing. Investment in digital services and digitization of operations (INR 18.83 million expenditure on digitization).
• Mitigation Strategies: Ongoing evaluation and integration of new technologies.
• Control Effectiveness: To be determined.
• Potential Financial Impact: Cost incurred for implementation, training and maintainence.
• Severity: Medium. The impact of climate change on hospital operations.
• Likelihood: Medium
• Trend: Increasing. Supreme Court of India said that people have a fundamental right to be free from impact of climate change.
• Mitigation Strategies: Enhancing energy efficiency, reducing waste, adopting renewable energy sources and preventive health measures.
• Control Effectiveness: Renewable energy consumed- 30,270 GJ.
• Potential Financial Impact: Cost of impementation.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• Geographic expansion, focusing on adjacent markets to Andhra Pradesh and Telangana, including Maharashtra (Nagpur, Nashik, Thane) and Karnataka (Bengaluru).
• Capacity expansion with bed additions planned across multiple locations (Secunderabad, Kondapur, Gachibowli, Begumpet, Vizag).
• Enhance market share in Tier 2 cities.
• Expansion into new service areas such as Oncology and mother & child care.
• Increase reach through Government schemes.

Competitive Advantages and Market Positioning #

• Strong presence in South India, particularly in Andhra Pradesh and Telangana, with a focus on tertiary and quaternary healthcare.
• Leadership in several specialties in Andhra Pradesh.
• Offering a wide range of specialties (over 40) and “world-first” and “India-first” procedures.
• “Affordable care” model.

Innovation Initiatives and R&D Effectiveness #

• Adoption of advanced medical technologies, including the Da Vinci Robotic System, Mammography System, and ECMO machines.
• The largest ECMO program and COVID double lung transplant capacity in critical care.
• Investment in digitization of operations to improve services.
• Emphasis in promoting participation in academics and medical research.
• Partnerships with bodies like SIGN and Royal College of Surgeons of Edinburgh for conferences.

M&A Strategy and Execution #

• Growth pursued through both organic expansion and strategic acquisitions.
• Recent acquisitions include a running hospital in Vizag.
• Entered an O&M agreement in Bangalore.

Management’s Track Record in Execution #

• Two-decade growth from a single hospital to a multi-center network with 4000 beds.
• Commissioning of the Nagpur facility and progress on multiple projects (Nashik, Thane, Bengaluru).
• Consistent growth in revenue and EBITDA except PAT.

Capital Allocation Strategy #

• Funding for expansion is primarily through a combination of debt(75%) and internal resources (25%).
• Debt-equity ratio is aimed to be below 0.75 and Debt-EBITDA ratio up to 1.75.
• Phased recruitment and leveraging of existing facilities, cost optimization.

ESG Analysis #

Environmental Metrics and Targets #

• Water consumption decreased by 17.64%.
• Renewable energy consumption was 30,270 GJ.
• Waste generation was 192 MT.

Social Responsibility Programs #

• CSR expenditure was INR 63.68 million.
• 60,000+ CSR beneficiaries.
• KIMS Education Society had 676 students enrolled.
• Activities in healthcare, education, skill development, women empowerment, and subsidized food were undertaken.

Governance Structure and Effectiveness #

• Transparent governance is stated as a commitment for investors.
• Compliance with SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and Companies Act, 2013.
• SBI mutual fund holds the largest stake in the company at 7.2%.

Regulatory Compliance and Future Preparations #

• Compliance with Companies Act, 2013 and Ind AS 110, Ind AS 28.
• Compliance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, is stated.
• The company is preparing for compliance with a new accounting software audit trail.

Forward Outlook: Medical and Healthcare Services Segment Analysis #

Management Guidance and Assumptions #

• Asset Useful Life: Management believes estimated useful lives of assets are realistic.
• Climate Change: Management considers climate change in estimates where appropriate.
• Geographic Expansion: Assumes expansion into Maharashtra and Karnataka.
• Debt-Equity Ratio: To be maintained below 0.75, comfortable up to 1.0.
• Debt-EBITDA Ratio: To be maintained up to 1.75.
• Expansion Funding: 75% from bank debt, 25% from internal resources.
• EBITDA Margins: Maintaining 25%+.

Market Growth Forecasts #

• Terminal Growth Rate: 5.00% applied to long-term cash flow projections.
• Impairment Testing: Projected revenue growth, operating margins, and operating cash flows used in impairment testing models.

Planned Strategic Initiatives #

• New Region Expansion: Nagpur (operational), Nashik (planned for August), Thane (planned for December), Bengaluru (Mahadevapura project planned for March, educational society tie-up).
• Telangana Capacity Expansion: Secunderabad (increasing bed capacity), Kondapur (new hospital), Gachibowli (Sunshine Hospital expansion), Begumpet.
• Tier 2 Cities: Enhancing market share in Andhra Pradesh.
• New Focus Areas: Oncology and Mother & Child Care.
• Government Schemes: Increase reach through Aarogyasri and Ayushman Bharat.

Capital Expenditure Plans #

• New Facilities: Significant capital expenditure planned for Nashik, Thane, and Bengaluru.
• Existing Facilities Expansion: Capital expenditure planned for Secunderabad, Kondapur, and Gachibowli.
• Capital Cost Per Bed: Proportional to current ARPOB.
• Cost Optimization: Phased recruitment and leveraging existing facilities.
• Bengaluru Model: Long lease on land and buildings, focusing capital investment on medical equipment.

Efficiency Improvement Targets #

• Cost Optimization: Phased recruitment, leveraging existing facilities, and the “Bengaluru model.”
• Doctor Compensation: Fixed salary for salaried doctors, variable compensation based on procedure revenues.
• Pharmacy Costs: Pass-through.
• Management: Employee and operating/maintenance costs.

Potential Challenges and Opportunities #

• Challenges:
  • Initial high fixed costs for new hospitals.
  • Regional cost variations (lower in Andhra Pradesh and Telangana, higher in Maharashtra and Karnataka).
  • Non-communicable diseases as leading cause of death in India.
  • Climate change.
• Opportunities:
  • Expansion into Maharashtra and Karnataka.
  • Growing demand in Telangana.
  • Potential for increased market share in Tier 2 cities.
  • New service offerings (Oncology, Mother & Child Care).
  • Increased participation in government healthcare schemes.
  • Disease predisposition.
  • Fostering a robust Research environment will help in understanding India’s unique health care needs.

Scenario Analysis and Sensitivity #

• Interest Rate Sensitivity: A 1% increase in MCLR would negatively impact profit or loss, while a 1% decrease would have a positive impact.
• Discount Rate Sensitivity: 1% increase will decrease net benefit obligation. 1% decrease will increase it.
• Salary Escalation Rate Sensitivity: 1% increase will increase net benefit obligation. 1% decrease will decrease it.
• Goodwill Impairment Testing: Sensitivity analysis showed no impairment under reasonable possible changes to discount rates and growth rates.

Audit and Regulatory Analysis #

Auditor’s Opinion and Qualifications #

• Unqualified Opinion: S.R. Batliboi & Associates LLP issued an unqualified opinion on both the standalone and consolidated financial statements.
• Emphasis of Matter: Reliance on other auditors for 2 subsidiaries and 1 associate.
• CARO Report: No qualifications or adverse remarks by auditors.

Key Accounting Policies and Changes #

• Revenue Recognition: Revenue is recognized upon transfer of control of goods/services. Inpatient services are recognized over the period of service.
• Impairment: Non-financial assets are assessed for impairment. Goodwill is tested annually.
• Leases: Single recognition and measurement approach is applied, recognizing lease liabilities and right-of-use assets.
• Goodwill: Impairment assessment includes projected revenue, operating margins, long term growth rates, and discount rates.
• New/Amended Standards: Amendments to Ind AS 8, Ind AS 12, and Ind AS 1 were applied with no material impact.

Internal Control Effectiveness #

• Adequate Controls: The Group maintained adequate internal financial controls over financial reporting.
• Audit Trail Exception: The new accounting software lacked a fully enabled audit trail feature for some changes made using privileged access rights.

Regulatory Compliance Status #

• General Compliance: The financial statements comply with Accounting Standards under Section 133 of the Companies Act, 2013.
• Specific Disclosures: Compliance with various statutory requirements confirmed, including:
  • No Benami property proceedings.
  • No transactions with struck-off companies.
  • No unregistered charges with ROC.
  • No cryptocurrency trading/investment.
  • No advancing/receiving funds for indirect lending/investment.
  • No undisclosed transactions surrendered as income.
• MSMED Act: Disclosures made regarding dues to micro and small enterprises.
• Dividend: No dividend declared or paid.
• Social Security Code, 2020: Impact is being assessed.

Legal Proceedings and Their Potential Impact #

• Contingent Liabilities: Disclosures including:
  • Guarantees issued on behalf of related entities.
  • GST matters in dispute.
  • Medical and other claims.
  • Stay obtained on property acquisition for road widening.
  • Consumer case for medical negligence.
  • Supreme Court judgment on Provident Fund contributions, with ongoing evaluation.
• Income Tax Disputes: Disputes demands from Income Tax Authorities; appeals filed.
• Impact Assessment: The Group does not expect outcomes to materially affect its financial position.

Related Party Transactions #

• Extensive Transactions: Wide range of transactions with subsidiaries, KMPs, close members of KMP, and enterprises under their control.
• Arm’s Length Basis: Transactions were stated to be priced on an arm’s length basis.
• Outstanding Balances: Disclosure of balances receivable/payable.

Subsequent Events #

• No Adjusting Events: No significant adjusting events occurred after the reporting period.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: Generally high, supported by unqualified audit opinions and detailed disclosures. The lack of a fully enabled audit trail is a weakness.
• Regulatory Risk: Moderate. Risks include the ongoing assessment of the Social Security Code, tax disputes, and potential for future legal challenges.