--Foreign and Local currency Issuer Default Rating (IDR) at 'BB+';
--National Scale rating at 'AA(bra)';
--Local debentures due to 2016 and 2018 at 'AA(bra)'.
In addition, Fitch has withdrawn the following rating for DASA's subsidiary,
The corporate Rating Outlook is Stable.
KEY RATING DRIVERS
DASA's credit ratings reflect its leading position in the Brazilian medical diagnostics industry, its strong and diversified portfolio of services and cash flow diversification from multiple counterparties, as well as the favorable long-term industry fundamentals. The ratings also incorporate DASA's track record of strong credit profile supported by adequate leverage ratios and liquidity position. DASA's ratings, though, are tempered by the ongoing challenges related to switching its business model to be more focused on medical excellence while it operates its business under a new profitability level. DASA's ratings are also limited by the rapid consolidation of the diagnostic industry, which could increase competitive pressures in the near term.
Strong Business Position
DASA is the largest company in the fragmented medical diagnostic industry, with an estimated market share of 12%. The company's size, reputation, multi-brand portfolio, and broad geographic diversification are considered by Fitch to be competitive advantages that support the ratings. Besides the outpatient and inpatient services, which represent around 83% of the company's revenues, DASA also operates lab-to-lab services (10% of its revenues) and offers services to public entities. The company has a track record of a diversified portfolio of payers, nevertheless the past years of consolidation in the Brazilian healthcare supplementary sector have somewhat resulted in greater counterparties concentration in DASA's clients portfolio.
Fitch sees as credit positives the long-term focus of DASA's current shareholders, as well as its conservative track record in managing business in the healthcare industry. The company's management has passed through different phases over the last five years. At this stage, DASA's strategy is focused on long-term medical excellence and quality of service. Fitch does not expect any relevant acquisition in the short term as DASA is focused on organic growth and on integrating the acquired assets from MD1. Moreover,
New Business Profitability; Limited Medium-Term Improvement
Dasa's change in business strategy along with inflationary pressures has led the company to operate under a new profitability level. Since mid-2011, the company has taken several initiatives to improve customer service, medical excellence and efficiency, which resulted in increasing cost and expenses. Fitch base case scenario foresee DASA's EBITDAR margin to move to around 18%, a relevant drop from the 25% average between 2010 and 2011.
Lower Capex to Benefit Free Cash Flow
Leverage to Marginally Decline
DASA has a good track record of maintaining an adequate capital structure, demonstrated by its four-year (2009-2013) average net adjusted debt/EBITDAR ratio of 2.5x. As of LTM ended period
The successful debentures issuance in late 2014 has enhanced DASA's liquidity position. Refinancing risks are mitigated and currently cash position is sufficient to cover debt amortizations until mid-2015. As of
Rating upgrade could occur as a result of a complete successful switch in the company's business strategy that results in a sustainable recovery in EBITDA margins above 19% associated with net adjusted leverage, measured by Net Adjusted Debt/EBITDAR, below 2.5x and strong liquidity position, measured by cash-to-short-term debt ratio around 1.5x.
A continued EBITDA margin compression to below 15% that results in net adjusted leverage consistently above 3.5x, without recovery prospects in the near term, would lead a downgrade.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20
Source: Fitch Ratings
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