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Fortis Healthcare
Limited
SRL Acquisition; Foray into
Diagnostic Space
Board approval for acquisition of Super Religare
Laboratories: Fortis Healthcare (81.5% promoter
holding) has obtained in-principle Board approval for the
acquisition of an approximately 86% stake in Super
Religare Laboratories Ltd (SRL; a privately held Fortis
group company). The acquisition could take
approximately two to three months to close. SRL’s total
income for F2011 was Rs5bn with a net loss of
Rs281mn (F1H11 annualized).
Strategic fit, mid- to long-term positive: SRL is the
largest player (48% market share) in the organized
diagnostics services market. It performed
approximately 34,000 diagnostic tests per day and
served over 5.6mn customers in F2011. Through this
acquisition, Fortis gains: 1) access to a strong diagnostic
laboratory network (with over 181 network laboratories
across India), becoming an end-to-end healthcare
service provider from outpatient consulting to diagnosis
to treatment, 2) access to a much larger patient base,
thereby adding to the referral network; and 3) access to
radiology. SRL has the largest radiology practice in
India (Fortis currently outsources radiology). Further,
SRL has a strong presence in tier II and III cities where
Fortis is targeting 25 hospitals over the next two years.
Valuation not yet decided, but benchmarking with
the recent Piramal Diagnostic deal (SRL acquired
Piramal Diagnostics in July 2010) on an EV/sales
(trailing) basis of 2.8x, we arrive at an approximate EV of
Rs14bn and equity value of approximately Rs10bn for
SRL. In our view, Fortis is well positioned to fund this
acquisition (net cash of Rs8bn post capex requirement
for launches over the next 12 months).
Investment implications: Short term, this could be an
overhang on the stock until we have further clarity on the
valuation. Further, we see 8-9% downside to our
F2012E EPS due to a reduction in financial income.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Fortis Healthcare
Limited
SRL Acquisition; Foray into
Diagnostic Space
Board approval for acquisition of Super Religare
Laboratories: Fortis Healthcare (81.5% promoter
holding) has obtained in-principle Board approval for the
acquisition of an approximately 86% stake in Super
Religare Laboratories Ltd (SRL; a privately held Fortis
group company). The acquisition could take
approximately two to three months to close. SRL’s total
income for F2011 was Rs5bn with a net loss of
Rs281mn (F1H11 annualized).
Strategic fit, mid- to long-term positive: SRL is the
largest player (48% market share) in the organized
diagnostics services market. It performed
approximately 34,000 diagnostic tests per day and
served over 5.6mn customers in F2011. Through this
acquisition, Fortis gains: 1) access to a strong diagnostic
laboratory network (with over 181 network laboratories
across India), becoming an end-to-end healthcare
service provider from outpatient consulting to diagnosis
to treatment, 2) access to a much larger patient base,
thereby adding to the referral network; and 3) access to
radiology. SRL has the largest radiology practice in
India (Fortis currently outsources radiology). Further,
SRL has a strong presence in tier II and III cities where
Fortis is targeting 25 hospitals over the next two years.
Valuation not yet decided, but benchmarking with
the recent Piramal Diagnostic deal (SRL acquired
Piramal Diagnostics in July 2010) on an EV/sales
(trailing) basis of 2.8x, we arrive at an approximate EV of
Rs14bn and equity value of approximately Rs10bn for
SRL. In our view, Fortis is well positioned to fund this
acquisition (net cash of Rs8bn post capex requirement
for launches over the next 12 months).
Investment implications: Short term, this could be an
overhang on the stock until we have further clarity on the
valuation. Further, we see 8-9% downside to our
F2012E EPS due to a reduction in financial income.
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