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M e r g e r o f i n t e r n a t i o n a l f i r m : E P S d r a g g e r ? ? ?
Fortis Healthcare has announced the valuation for the acquisition of Fortis
International at US$665 million (i.e. at ~| 3150 crore). Though, as per the
management, this move seems to look fruitful, considering its long-term
operational synergistic benefit, there is still lack of clarity over profitability
of the international firm and potential of synergistic opportunities for the
domestic entity. In our view, the benefits from these synergies will not
come in to the picture soon. On the other hand, since its an all-cash deal
involving cash outflow of around | 3,150 crore, majority of which would
be funded through debt, it would put pressure on the domestic entity’s
profitability leading to EPS dilution over the next couple of years.
ƒ Profitability of international firm remains key monitorables
Profitability of the international firm that is being acquired by the
domestic firm and a key rationale (in terms of synergistic
opportunities) behind transferring the international entity from fully
promoter owned company into domestic entity still remains key
monitorables, going forward. In our view, the benefits from these
synergies will not come into the picture soon. On the other hand,
since it’s an all-cash deal involving cash outflow of around | 3,150
crore, majority of which would be funded through debt, it would put
pressure on the domestic entity’s profitability and may lead to EPS
dilution over the next couple of years.
ƒ Downgrade to HOLD
This deal has been done at 17.5x FY11 and 12.5x FY12E EV/EBITDA
(assuming EBITDA growth of 40% for FY12E). If EBITDA growth of
40% is achievable then this valuations looks fair. However, lower
profitability of international firms and higher interest burden may act
as an EPS dragger for the combined entity. Considering this, we
lower our FY13E multiple target and revise our one-year price target
downward to | 140 from | 185 with a HOLD rating (i.e. at 13.5x FY13
EV/EBITDA). We will revisit our assumptions once we get full clarity
on the international firm’s profitability and debt-equity mix for
funding this deal.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
M e r g e r o f i n t e r n a t i o n a l f i r m : E P S d r a g g e r ? ? ?
Fortis Healthcare has announced the valuation for the acquisition of Fortis
International at US$665 million (i.e. at ~| 3150 crore). Though, as per the
management, this move seems to look fruitful, considering its long-term
operational synergistic benefit, there is still lack of clarity over profitability
of the international firm and potential of synergistic opportunities for the
domestic entity. In our view, the benefits from these synergies will not
come in to the picture soon. On the other hand, since its an all-cash deal
involving cash outflow of around | 3,150 crore, majority of which would
be funded through debt, it would put pressure on the domestic entity’s
profitability leading to EPS dilution over the next couple of years.
ƒ Profitability of international firm remains key monitorables
Profitability of the international firm that is being acquired by the
domestic firm and a key rationale (in terms of synergistic
opportunities) behind transferring the international entity from fully
promoter owned company into domestic entity still remains key
monitorables, going forward. In our view, the benefits from these
synergies will not come into the picture soon. On the other hand,
since it’s an all-cash deal involving cash outflow of around | 3,150
crore, majority of which would be funded through debt, it would put
pressure on the domestic entity’s profitability and may lead to EPS
dilution over the next couple of years.
ƒ Downgrade to HOLD
This deal has been done at 17.5x FY11 and 12.5x FY12E EV/EBITDA
(assuming EBITDA growth of 40% for FY12E). If EBITDA growth of
40% is achievable then this valuations looks fair. However, lower
profitability of international firms and higher interest burden may act
as an EPS dragger for the combined entity. Considering this, we
lower our FY13E multiple target and revise our one-year price target
downward to | 140 from | 185 with a HOLD rating (i.e. at 13.5x FY13
EV/EBITDA). We will revisit our assumptions once we get full clarity
on the international firm’s profitability and debt-equity mix for
funding this deal.
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