Press Release - CARE’s Ratings

1 1 CARE Ratings Limited Press Release POCT Services Private Limited August 08, 2017 Rating Facilities Amount (Rs. crore) Rating1 Rating Action Long-term Bank Facilities CARE BB+; Stable (Double B Plus; Outlook: Stable) Assigned Short-term Bank Facilities CARE A4 + (A Four Plus) Assigned Total (Rupees Fifteen crore only) Details of facilities in Anneuxre-1 Detailed Rationale & Key Rating Drivers The rating assigned to POCT Services Private Limited (POCT) is primarily constrained by the small scale of operations with low net worth base and leveraged capital structure. The rating is further constrained by competitive nature of business . The rating, however, draws comfort from established presence in the medical and diagnostic equipment segment, growth in scale of operations, moderate profitability and coverage indicators and moderate operating cycle coupled with long standing association with reputed suppliers and favorable prospects for healthcare industry.

2 Going forward, the ability of company to profitability increase the scale of operations with improvement in capital structure will be the key rating sensitivity. Detailed description of the key rating drivers Key Rating Weaknesses Small though growing scale of operations coupled with low networth base The scale of operations of POCT has remained small marked by a total operating income and gross cash accruals of crore and crore respectively during FY16 (FY refers to the period April 01 to March 31). Further, the company s networth base was small at crore as on March 31, 2016 The small scale limits the firm s financial flexibility in times of stress and deprives it of scale benefits. Though, the risk is partially mitigated by the fact that the scale of operation is growing continuously. For the period FY14-FY16, POCT s total operating income grew from Rs.

3 Crore (with 2 months of operations) to Rs. crore reflecting a compounded annual growth rate (CAGR) of 282% mainly on account of increase in quantity sold. Further, the company has achieved TOI of Rs. crore with a net profit of Rs. crore (based on unaudited results). Leveraged capital structure The capital structure of the company as characterized by debt equity and overall gearing has stood leveraged for past three financial years (FY14-FY15) owing to high dependence on external borrowings to meet capex and working capital requirements coupled with low networth base. Debt to equity and overall gearing ratio of the company stood at and respectively as on March 31, 2016 as against and respectively as on March 31, 2015. The deterioration in the Debt equity ratio was mainly on account of availing more external finance in form of enhancement in working capital limits, unsecured loans and term loans to support the growing scale of operation.

4 The improvement in the overall gearing was on account of lower utilization of working capital borrowings as on balance sheet date. The average working capital limits remained around 85% utilization for last 12 months period ended May, 2017. Competitive nature of industry POCT operates in highly fragmented industry wherein the presence of large number of players in the unorganized sector and organized sectors. There are number of small and regional players and catering to the same market which has limited the bargaining power of the firm and has exerted pressure on its margins. Key Rating Strengths Established presence in the medical and diagnostic equipment segment, and strong relationships with suppliers Mr. Saurabh Garg, Director is a qualified bio medical engineer. He has an experience of more than 2 decade in trading of medical equipment industry through POCT and Span diagnostics Limited.

5 He looks after the overall operations of the company. Prior to POCT, he was working as a marketing head with Span Diagnostics Limited. The promoters' experience of 20 years has enabled the company to build strong relationships with key suppliers and customers, resulting in steady ramp-up of operations. Diversification of customers (private hospitals and medical institutes), as well as of business 1 Complete definitions of the Ratings assigned are available at and in other CARE publications. 2 CARE Ratings Limited Press Release segments (trading and laboratory business , which is a niche segment) has helped the company grow and establish itself in the segments it operates. He is also supported by a well-established marketing team of 30 sales agents supervised by general manager and business development manager.

6 Moreover, the company also has a team of 6 engineers headed by a manager to provide after sale services to its clients. Moderate profitability and coverage indicators Trading industry is marked by inherently low profitability margins; however the company has been able to register growing PBILDT margins for last three years FY14-FY16 and with PBILDT of in FY16 attributable to additional services provided by the company like installation of equipment and after sales services and PAT margins remained above for the same period. Coverage indicators as characterized by interest coverage and Total debt to gross cash accruals (TDGCA) was comfortable for the period FY14-FY16 mainly on account of moderate profitability. The interest coverage and TDGCA stood at and for FY16. Moderate operating cycle The company offers an average credit period of 1-2 months to its customer resulting in average collection period of 40 days in FY16.

7 The company maintains an adequate level of inventory to meet the immediate demand of the customer resulting in an average inventory holding 49 days in FY16. Further, the company procures the diagnostic equipment and reagents mainly from Germany, China and USA. The payment is made to the suppliers in both advance and credit basis. Comfortable credit period extended to the customer with payment to be made in advance to the suppliers has increased POCT s dependence on working capital limits to make payment to its supplier which results in almost 85% utilization of its average working capital limits for the past twelve months ending May 2017. Association with reputed suppliers POCT procures diagnostic equipment from companies like Merck group, Bio-Rad group, Drager, Germany, Johnson & Johnson, USA and Abott Group, USA.

8 Association with reputed suppliers ensures quality products which help the company in product off take. Favorable prospects for healthcare industry Factors such as rise in per capita spending on healthcare, change in demographic profile, transition in disease profiles, increase in health insurance penetration, and fast growing medical tourism market, are expected to be the growth drivers of the industry. Increasing rural incomes and generous insurance schemes of the government have enhanced the affordability of quality health care in Tier II and III cities. Also year on year The GOI has allocated significant amount of funds to health department due to increasing automation in the hospitals. Hence, many hospital companies have been expanding their operations in these centres.

9 Increase in demand for hospitals would also result in increase in demand for equipment for existing and new hospitals and health care testing centres. With increasing awareness in the field, the demand would also be supported by replacement of old equipment. Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition CARE s Methodology for Wholesale Trading CARE s Methodology for Manufacturing Companies Financial ratios (Non-Financial Sector) About the company Lucknow based POCT services Private Limited (POCT) was incorporated in 2010 and started its commercial operation in 2014. The company is currently being managed by Mr. Suarabh Garg and his wife Mrs. Amita Garg POCT is engaged in trading and installation of medical diagnosis equipment for different segments like pathology, hematology, biochemistry etc.

10 Also, the company is engaged in manufacturing and trading of reagents chemicals required for diagnostic equipment. The manufacturing unit is located in Bawana, Delhi. Furthermore, POCT has taken over the diagnostics business (Lucknow region) from Merck Group. The company procures these equipment directly from domestic subsidiaries of multinational companies like Abbott group USA, Drager Medical, Germany, Bio-Rad laboratories and Merck, Germany. POCT customer base comprises of various private hospitals and medical colleges. POCT Services (an associate concern) is a partnership firm and engaged in similar line of business . POCT Services sells the products to public hospitals and medical colleges. 3 CARE Ratings Limited Press Release Brief Financials (Rs. crore) FY15 (A) FY16 (A) FY17(Prov.) Total operating income PBILDT PAT Overall gearing (times) Interest coverage (times) A: Audited Prov.