Action: Balance sheet leverage reduced; focus back on India; Buy
FORH has addressed two investor concerns: a) high leverage on balance
sheet and b) higher complexity of business with an international focus.
FORH has divested most of its international operations and India sales
now account for more than 90% of its overall revenue. Through
divestments and fresh equity issuance, we expect net debt to come down
to INR10.8bn by end-FY14F from INR59.6bn in Mar ’13. Net debt-toequity is comfortable at 0.18x (Mar’14) and, in our view, presents enough
room to expand its India operations more aggressively. We incorporate
the impact of recent corporate actions such as the divesture of Quality
Health and Hoan My and equity issuance. Our DCF-based TP remains
unchanged at INR124.
Catalysts
Commissioning and ramp-up of its newly commissioned Gurgaon,
Ludhiana and Chennai facilities and subsequent improvement in margins;
improvement in ROE.
Valuations
Near-term earnings are suppressed due to the high payout to Religare
Health Trust (RHT) (RHT SP, Buy) and high burden of start-up costs. On
EV/EBITDA, the stock trades at 21x FY15F, at a 33% premium to APHS.
Given the operating leverage, we expect EBITDA and earnings to rise
rapidly (we estimate EBITDA and EPS CAGR of 42% over FY15-18F) and
on our FY17F estimates FORH trades at a marginal discount to Apollo
(APHS IN, Buy)
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FORH has addressed two investor concerns: a) high leverage on balance
sheet and b) higher complexity of business with an international focus.
FORH has divested most of its international operations and India sales
now account for more than 90% of its overall revenue. Through
divestments and fresh equity issuance, we expect net debt to come down
to INR10.8bn by end-FY14F from INR59.6bn in Mar ’13. Net debt-toequity is comfortable at 0.18x (Mar’14) and, in our view, presents enough
room to expand its India operations more aggressively. We incorporate
the impact of recent corporate actions such as the divesture of Quality
Health and Hoan My and equity issuance. Our DCF-based TP remains
unchanged at INR124.
Catalysts
Commissioning and ramp-up of its newly commissioned Gurgaon,
Ludhiana and Chennai facilities and subsequent improvement in margins;
improvement in ROE.
Valuations
Near-term earnings are suppressed due to the high payout to Religare
Health Trust (RHT) (RHT SP, Buy) and high burden of start-up costs. On
EV/EBITDA, the stock trades at 21x FY15F, at a 33% premium to APHS.
Given the operating leverage, we expect EBITDA and earnings to rise
rapidly (we estimate EBITDA and EPS CAGR of 42% over FY15-18F) and
on our FY17F estimates FORH trades at a marginal discount to Apollo
(APHS IN, Buy)
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