Lanka Hospitals plans regional labs at Rs. 800 mln investment : RAM
View(s):Ratings agency RAM recently upgraded the outlook for Lanka Hospitals Corporation PLC (LHC), to “positive”, from “stable”, attributable to the “Hospital’s strong financial profile and its improved business position as a result of its prospective foray into the highly lucrative laboratory and diagnostic segments”. Further, RAM also maintained the hospital’s long- and short-term corporate credit ratings at A+ and P1, respectively.
Additionally, RAM stated that it had also “positively viewed” the hospital’s progress in obtaining the “Joint Commission International Accreditation (JCIA) in order to capitalise on the country’s booming medical tourism segment”.
Elaborating further about the hospital’s expansion into labs and diagnostics, RAM revealed; “LHC advanced its plans to set up a fully-fledged laboratory consisting of an in-house state of the art lab and diagnostics facility catering to six clinical specialities. LHC also plans to set up regional laboratories around the country and form partnerships with other medical facilities to expand the scope of its lab services. Capital expenditure for this venture is estimated to be Rs. 800 million”.
At the same time, RAM also noted; “LHC’s financial profile is reflective of its conservative investment policy. Its cashflow protection metrics are considered strong while its gearing ratio stood at a low 0.03 times as at end-FYE 31 December 2012 (FY Dec 2012). LHC’s net- gearing ratio stood at -0.24 times, primarily due to its Rs. 1.0 billion of cash and cash equivalents against total debt amounting to Rs. 115.17 million. The Hospital’s funds from operations (‘FFO’) debt coverage was also healthy at 5.05 times, reduced slightly from 6.73 times in FY Dec 2011… Furthermore, LHC’s liquidity profile continued to be healthy, its cash and cash equivalents (‘CCE’) providing a strong buffer against short-term borrowings. Its ratio of CCE to short-term debt rose to 8.70 times as at end-December 2012 from 7.74 times previously, before moderating slightly to 8.11 times as at end- September 2013. We note that LHC’s current and quick ratios were strong at a respective 3.13 times and 2.80 times as at end-December 2012”.
Meanwhile, referring to the Sri Lankan healthcare sector as a whole, RAM commented; “An increasing number of patients have, over the years, sought treatment at private hospitals as opposed to the government sector, owing to better service quality and shorter waiting times. The growth prospects of the local private healthcare industry remain encouraging, underscored by greater health awareness among the public, higher disposable incomes, Sri Lanka’s increasing ageing population and healthcare insurance coverage among the working population.
Moreover, a significant challenge to the private healthcare sector’s growth potential is the shortage of skilled personnel and the resultant impact on staff costs, which have escalated over the years. As these cost increases cannot be fully passed on to customers, given the competitive nature of the industry, persistently rising costs may continue to pressure LHC’s profit margins”. (JH)