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UBS Investment Research
India Healthcare Sector
Multiple policy positives
Service tax on healthcare services rolled back
The service tax on healthcare services provided by private hospitals with AC and
more than 25 beds, which was announced during the budget, has been rolled back.
This will reduce some of the concerns over hospitals’ incremental pricing power,
in our view.
Investment-linked depreciation benefits
Additionally, hospital companies can expense new investments in the first year of
operation and offset profit from other operating facilities against capex.
Hospitals to get infrastructure status
There have been media reports about Infrastructure status for hospital investments.
We spoke with Apollo Hospitals. The potential benefit for hospitals can be reduced
interest costs.
Tax benefit from 80(IB) to continue till 2013
Hospitals enjoy tax benefit 80(IB), which provides hospitals with a tax break on
profit during the first five years of operations. The tax benefit is set to expire in
March 2013. Therefore only hospitals commissioned prior to March 2013 will
enjoy this benefit. However, we do not believe that this is material since hospitals
do not record significant profit in the first five years of operations.
Hospitals to get infrastructure status
A possible benefit from this is that hospitals may be able to raise funding at a
preferred rate. Assuming a 2% reduction in interest cost, we estimate Apollo
Hospitals and Fortis Healthcare would be able to achieve interest cost saving of
Rs0.9bn and Rs0.8bn, respectively, over FY12-FY15.
Investment-linked tax benefits
As per the provisions, hospitals will be able to expense the investments in
hospitals in the year the investment is made. We believe this would
subsequently result in a positive impact on cash flows (and not on reported
taxes).
We await further details on the policies before revisiting our estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Healthcare Sector
Multiple policy positives
Service tax on healthcare services rolled back
The service tax on healthcare services provided by private hospitals with AC and
more than 25 beds, which was announced during the budget, has been rolled back.
This will reduce some of the concerns over hospitals’ incremental pricing power,
in our view.
Investment-linked depreciation benefits
Additionally, hospital companies can expense new investments in the first year of
operation and offset profit from other operating facilities against capex.
Hospitals to get infrastructure status
There have been media reports about Infrastructure status for hospital investments.
We spoke with Apollo Hospitals. The potential benefit for hospitals can be reduced
interest costs.
Tax benefit from 80(IB) to continue till 2013
Hospitals enjoy tax benefit 80(IB), which provides hospitals with a tax break on
profit during the first five years of operations. The tax benefit is set to expire in
March 2013. Therefore only hospitals commissioned prior to March 2013 will
enjoy this benefit. However, we do not believe that this is material since hospitals
do not record significant profit in the first five years of operations.
Hospitals to get infrastructure status
A possible benefit from this is that hospitals may be able to raise funding at a
preferred rate. Assuming a 2% reduction in interest cost, we estimate Apollo
Hospitals and Fortis Healthcare would be able to achieve interest cost saving of
Rs0.9bn and Rs0.8bn, respectively, over FY12-FY15.
Investment-linked tax benefits
As per the provisions, hospitals will be able to expense the investments in
hospitals in the year the investment is made. We believe this would
subsequently result in a positive impact on cash flows (and not on reported
taxes).
We await further details on the policies before revisiting our estimates.
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