Press Release

JCR-VIS Assigns Initial Entity Ratings to Shifa International Hospitals Limited

Karachi, March 01, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Shifa International Hospitals Limited (Shifa). Outlook on the assigned ratings is ‘Stable’.

The assigned ratings to Shifa are underpinned by its eminent clinical reputation as a large private healthcare organization within northern region of the country. Ratings also incorporate Shifa’s unique positioning, vis-à-vis other large hospitals, as an integrated health system providing primary, secondary and tertiary healthcare services with the hospital specializing in high acuity cases. Further, broad service array and scale of operations is a key rating driver. Shifa has developed a strong reputation over the years through which it is able to attract patients from local as well as outstation areas. Joint Commission International Accreditation (JCIA) for Shifa’s Hospital Program in May’2017 is also a testament to the hospital’s strong focus on patient care and safety as measured by international standards.

JCR-VIS considers healthcare services as a low risk industry in view of limited demand cyclicality and favorable economic and demographic trends of the country. Deficit of health care facility in the country is evident from 6 Beds per 10,000 individual in Pakistan which is on the lower side as compared to global median of around 30 beds while physicians per 10,000 individuals at 0.8 are almost half of the global average. Given the importance of affordable healthcare, the sector remains exposed to risk of interventions by the state and central governments along with other relevant regulatory authorities as has been witnessed in other South Asian countries. Other business risk factors include deficit of human capital and possibility of emergence of competing hospitals within the vicinity.

Assessment of financial risk profile incorporates healthy liquidity profile and adequate capitalization indicators. Although revenue diversity is satisfactory among product portfolio, the organization is concentrated in northern Punjab area indicating a limited geographic footprint. The largest hospital, Shifa H-8 accounting for over 90% of the top line is situated in Islamabad. On a timeline basis, operating revenue has grown at compound annual growth rate (CAGR) of 13.1% over the last three years. However, profitability witnessed a decline in FY17 on account of lower margins.

Over next three years, 500 new beds will be added through acquisition and expansion of existing facilities. In view of aggressive expansion plans, cash flow coverage and leverage metrics of Shifa are expected to decline from current levels but are projected to remain within benchmarks for the assigned ratings. Achieving projected growth in revenues and trend in EBITDA margins will be important rating drivers. Significant increase in gearing beyond projected levels over the rating horizon will trigger a rating review.

For further information on this rating announcement, please contact the undersigned (Ext: 207) or Mr. Javed Callea (Ext: 201) at 35311861-70 or fax to 35311872.

Jamal Abbas Zaidi

Applicable Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2018 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited