Dr. Ziauddin Hospital Trust

CREDIT RATING REPORT | Dec-24

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
27-Dec-24 A- A2 Stable Maintain -
28-Dec-23 A- A2 Stable Initial -
About the Entity

Dr. Ziauddin Hospital Trust is registered under section 16-A of the Sindh Trust Act 2020. The board consists of six members. Mr. Asim Hussain is the Chief Trustee and Chairman of the Ziauddin Group of Hospitals.

Rating Rationale

The assigned ratings of Dr. Ziauddin Hospital Trust (“the Trust” or “ZHT”) reflect the prominent profile of the Trust in the private hospital industry of Pakistan. The Sindh Healthcare Commission is the regulatory body of the Trust. The Ziauddin group has a history spanning over six decades, beginning as a 25-bed maternity home in Nazimabad and gradually evolving into a healthcare institution with a capacity of 845 beds. The group has expanded their business diversity by venturing into the education field and establishing a university and education board. Three entities primarily operate under the Ziauddin group, including Ziauddin Hospital Trust, Ziauddin Memorial Hospital and Ziauddin University. ZHT focuses on ensuring sustainable organic growth in its business. To achieve this, it has optimally diversified its geographical presence and revenue streams across all income tiers of society. ZHT operates as a multispecialty hospital, providing 35 therapeutic services that augment its business sustainability profile and market presence. The Cyclotron project, designed for cancer diagnosis through the production of isotopes, is currently operational at a commercial level. Additionally, the strategic expansion of ZHT includes the completion of the Sukkur campus with a capacity of 180 beds and the addition of 43 beds on the 5th floor of the Clifton campus. These projects have started contributing to ZHT's topline and are expected to improve business volumes in the upcoming quarters. During FY24, ZHT generated revenue of PKR 9.64bln (FY23: PKR 7.96bln), reflecting a growth of 21.1% on a YoY basis, primarily driven by an increase in the number of patients treated annually and a moderate rise in treatment pricing. This aligns with the Trust's vision to provide healthcare services at affordable prices to the underprivileged segment of society. In terms of the number of patients treated branch-wise annually, the majority of the volume has been served in the North Nazimabad branch followed by Clifton and Kemari. The recruitment of highly qualified physicians and surgeons, along with the procurement of imported consumables, are the primary costs associated with the Trust's cost structure. During FY24, the gross margins remained largely intact; however, inflated finance costs and a surge in the tax burden impacted the net margins of ZHT. On a positive note, operating cash flow witnessed a significant improvement compared to the previous year, reflecting stronger cash generation capabilities and operational efficiency. The Board of the Trust is more of an advisory nature dominated by Medical Professionals and guides the management in the execution of multiple operations. The top-tier management of the hospital is highly qualified along with adequate delegation of authority matrix. The financial risk profile of ZHT is considered moderate as they aptly manage their working capital requirement through short-term borrowings and internally generated cashflows. ZHT maintains a low-leveraged capital structure along with adequate coverages and cashflows. The prime challenges specific to the private hospital industry are reputational risk followed by capacity and infrastructure development, ensuring the quality-of-care standards and managing the high cost of import and escalated energy requirements.

Key Rating Drivers

The ratings are dependent on the consistent growth in the top line while maintaining profitability matrix, coverages and cashflows at an optimal level. Going forward, adherence to the debt matrix at an adequate level, the prudent management of reputational risk and alignment of the financial projections with the performance of the Trust remain critical for the ratings.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Dr. Ziauddin Hospital Trust

rating analysis

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Profile
Legal Structure

Dr. Ziauddin Hospital Trust (“the Trust” or “the Hospital” or "ZHT”) is registered under section 16-A of the Sindh Trust Act 2020.

Background

Dr. Ziauddin Memorial Hospital began in 1957 at Nazimabad, Karachi, when Sir Dr Ziauddin Ahmed’s daughter, Dr Aijaz Fatima (Late) and her husband Dr Tajamul Hussain (Late), established a 25-bed maternity home. This laid the foundation for the entire Dr. Ziauddin Group of Hospitals, one of the largest healthcare groups in the country. Dr. Ziauddin Hospital Trust was established in 1976 and the first campus opened in North Nazimabad, Karachi.

Operations

The Trust operates with four campuses: North Nazimabad Campus, Clifton Campus, Keamari Campus and Sukkur Campus. The hospital has a workforce of highly qualified doctors leading various departments. The Hospital currently operates in Karachi and Sukkur.

Ownership
Ownership Structure

The Hospital is in the ownership of the Trust and is run by the Board of Trustees.

Stability

The Trust has a well-defined trust deed that clearly specifies the tenure of the chief trustee and the mechanism for appointing a successor.

Business Acumen

Dr. Asim Hussain, Chairman of the Group, holds a portfolio of Chairperson Education City Board, Sindh. He also previously chaired Sindh Higher Education Commission, the National Reconstruction Bureau, and also served as Federal Minister Petroleum and Natural Resources. The Group prioritizes quality, transparency, and efficiency.

Financial Strength

The financial strength of the Group is primarily vested in the performance of Ziauddin Hospital Trust and Ziauddin University.

Governance
Board Structure

The Trust is governed by a six-member Board of Trustees. The Chief Trustee is Dr. Asim Hussain. The Board plays a vital role in ensuring effective oversight, decision-making, and in driving the Trust's operations and upholding best practices in their respective areas of focus.

Members’ Profile

The board members are highly qualified having considerable industry-specific exposure. The Board is dominated by Medical Professionals. Dr. Asim Hussain, is Chairman and Chief Trustee of ZHT and Chancellor of Ziauddin University. In recognition of his services to the nation in the fields of education and healthcare, he was conferred with the Sitara-i-Imtiaz and Nishan-e-Imtiaz.

Board Effectiveness

Board oversight is considered effective with board meetings held frequently on need basis.

Financial Transparency

BDO Ebrahim & Co., Chartered Accountants are the Company's external auditors. The audit of financial statements as of FY24 is in process. The auditors had issued an unqualified opinion on financial statements as of FY23. The auditors are listed on the SBP “A” category panel of auditors.

Management
Organizational Structure

The Hospital has a lean organizational structure as all departmental heads related to medical services are reportable to Medical Director and Campuses are managed by respective COOs. The internal committees are responsible for overseeing operations and conducting regular assessments of internal controls.

Management Team

Mr. Osama Ahmad, with over 20 years of diverse experience, has been associated with Ziauddin Hospital for the past 4 years. He currently serves as the Managing Director (MD) and Group Financial Advisor. Prior to this, he held prominent roles, including Director Finance at NUST Islamabad. Dr. Ashar Ekhlaq Ahmed (MRCP), the Medical Director of the Hospital, brings nearly two decades of expertise in the field of Rheumatology. The management team comprises qualified and experienced professionals committed to excellence in healthcare management.

Effectiveness

The departmental heads are responsible for their respective departments' operational activities and ensure the enforcement of SOPs required to maintain standards of quality. The management team has an adequate delegation of authority matrix.

MIS

The Hospital employs a Hospital Management System (HMIS) covering patient care aspects such as patient registration, ER, pharmacy and other relevant areas. Finance, billing, and supply chain are managed in Oracle ERP, fully integrated with HMIS. To ensure business continuity, security, integration and efficient operations, Hyper Converged Infrastructure (HCI) has also been installed including other I.T controls and applications.

Control Environment

The control environment is supplemented through a range of committees overseeing critical areas such as Hospital Management Committees, OT Management, AMS (Antimicrobial Stewardship), Monthly Coordination and Integration Committee. Further policies have been implemented in all important areas including Procurement Policy, HR Policy, Anti-Harassment Policy and Patient Complaint Procedures etc. Internal Audit Department has an ongoing role to assess the operational efficiency and mitigate the anomalies.

Business Risk
Industry Dynamics

According to data published by the Health Economic Survey of Pakistan as of 2023, the public sector operators with a capacity of ~1,284 hospitals, accompanied by 299,113 registered doctors and 151,661 units of beds. During FY24, the total federal health budget is ~PKR 25bln. As per the data available on PBS, the Medical equipment imports in Pakistan as of FY23 were PKR 124bln. The prime challenges specific to the private hospital industry are reputational risk followed by capacity and infrastructure development, ensuring the quality-of-care standards and managing the high cost of import coupled with escalated energy requirements.

Relative Position

The Hospital industry is highly fragmented. The ZHT consists of 845 beds reflecting an adequate market share in the hospital industry of Pakistan in terms of the total number of beds.

Revenues

During FY24, the top line of the Trust showed an increase of 21% YoY basis and stood at PKR 9.6bln (FY23: PKR 7.96bln, 1QFY25: PKR 3.06bln) mainly driven by the pharmacy store, followed by the laboratory, radiology etc. The top ten services contributed ~ 6.0bln in the topline. Majority of the revenue has been generated by the North Nazimabad branch followed by Clifton and Kemari, primarily driven by an increase in the number of patients treated annually and a moderate rise in treatment pricing. This aligns with the Trust's vision to provide healthcare services at affordable prices to the underprivileged segment of society. However, the core operations remain sustainable due to efficient cost management, increase in number of patients treated annually. While the Trust remains focused on its core mission of providing health services, it is actively enhancing its capabilities through balancing, modernization and replacement of biomedical equipment. Significant advancements in cancer treatment have been achieved, including the installation of a Cyclotron and the initiation of PET CT Scans, a states-of-the-art diagnostic tools to detect cancer across the body. Both have commenced commercial operations in the current year.

Margins

During FY24, the Trust generated a Profit after tax of PKR 258mln (FY23: PKR 305mln, 1QFY25: PKR 125mln). The net margin of ZHT showed a slight dip, primarily driven by inflated finance costs, a surge in the tax burden, and higher procurement costs of imported consumables (N.P Margin: FY24: 2.7%, FY23: 3.8%). While, during 1QFY25, the net profit margin increased to 4.1%. During 1QFY25, the gross profit margin of the Trust has shown an increasing trend.

Sustainability

The Trust had imported a Cyclotron and a PET-CT Scan for cancer detection in previous years. In the current year, these were successfully installed and commenced operations, enabling the production of isotopes for advanced diagnostics through PET CT Scans. Additionally, a new 180-bed facility in Sukkur has been operational since July 2024, with multiple phases gradually activated. The formal inauguration was held in December 2024, by the President of the Islamic Republic of Pakistan. The expansion of beds at the Clifton campus 5th floor is completed and has been operational. The Trust has installed solar of 350 kW at Clifton Campus and 510 kW at Kemari Campus, while 1 MW solar is being installed at Sukkur Campus to meet the energy requirements of the Trust. The management is dedicated to aligning the performance of the hospital with its financial projections.

Financial Risk
Working capital

The Trust aptly manages working capital requirements through short-term borrowings and internal cashflows. During FY24, the short-term trade leverage showed a decline, reflecting reduced room to borrow. The current ratio is 1.1x during FY24 (FY23: 1.4x, 1QFY25: 1.0x).

Coverages

The Trust's FCFO was PKR 982mln in FY24 (FY23: PKR 879mln, 1QFY25: PKR 403mln). The EBITDA / Finance Cost ratio stood at 2.8x during FY24 (FY23: 4.2x, 1QFY25: 3.7x).

Capitalization

The Trust maintains a low leveraged capital structure, with leverage at 28.8% in FY24 (FY23: 25.5%, 1QFY25: 28.7%). In future, some change in leveraging is expected after the off-loading of debt, utilized for expansion. The borrowings are dominated by long-term borrowings which stood at PKR 1,501mln as of FY24 (1QFY25: PKR 1,530mln) . ZHT has short-term borrowings of PKR 444mln (1QFY25: PKR 491mln). The Trust has availed subsidized borrowing from SBP under the category of TERF and Refinance Facility for Combating COVID - 19 (RFCC). The equity base of the Trust stood at PKR 7.7bln mainly supplemented through an Unappropriated Profit of PKR 3.3bln during 1QFY25.

 
 

Dec-24

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Dr. Ziauddin Hospital Trust

financial summary

(PKR mln)

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Sep-24
3M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Total Assets 13,688 13,461 11,689 10,462
2. Net Assets 7,696 7,569 7,310 7,006
B. INCOME STATEMENT
1. Sales 3,061 9,639 7,960 7,043
2. Net Income Or (Loss) 125 258 305 476
C. CASH FLOW STATEMENT
1. Net Cash provided by Operating Activities 156 515 381 555
2. Net Cash (Used in) or Available From Investing Activities (344) (793) (1,318) (1,590)
3. Net Cash (Used in) or Available From Financing Activities 37 629 823 753
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 27.0% 21.1% 13.0% 16.1%
b. Net Profit Margin 4.1% 2.7% 3.8% 6.8%
c. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 9.0% 10.3% 7.9% 9.4%
d. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 6.6% 3.5% 4.3% 7.0%
2. Working Capital Management
a. Gross Working Capital (Average Days) 62 70 68 60
b. Net Working Capital (Average Days) -1 6 11 5
c. Current Ratio (Current Assets / Current Liabilities) 1.0 1.1 1.4 1.2
3. Coverages
a. EBITDA / Finance Cost 3.7 2.8 4.2 8.8
b. FCFO / Finance Cost+CMLTB+Excess STB 1.1 0.8 1.2 2.0
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 2.6 5.2 3.6 1.8
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 28.7% 28.8% 25.5% 18.8%
b. Interest or Markup Payable (Days) 20.2 12.8 17.7 14.5
c. Entity Average Borrowing Rate 16.6% 16.4% 11.9% 9.6%

Dec-24

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Dr. Ziauddin Hospital Trust

rating scale

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Dec-24

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Dr. Ziauddin Hospital Trust

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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