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L a c k o f c l a r i t y o n d e al: A c o n cer n f o r m i n ori ty…
Fortis Healthcare’s board has recently approved the acquisition of
Singapore based firm Fortis Healthcare International (FHI), wholly owned
by promoters, in an all-cash deal to consolidate the group’s healthcare
business under one entity. We believe, though this move will make Fortis
the country’s largest healthcare chain by revenues (over $1 billion) with
over 12,000 beds, it would put pressure on the company’s profitability
and its balance sheet in the near term on account of the large deal size.
We also need to assess at what valuations, FHI is going to be acquired by
the company. Hence, due to lack of clarity over this deal with respect to
valuations and profitability, we recommend our investors exit from this
counter till better clarity emerges.
ƒ Deal may put strain on profitability and balance sheet
The company’s current interest coverage ratio stands at ~1.6x. The
company has recently acquired Super Religare Labs for | 803 crore
and also has ongoing greenfield projects worth | 1,024 crore that
are lined up for over the next 24 months. With this new deal
announcement, the company would be further required to pay ~|
2,000 crore to the promoters in cash (i.e. assuming at cost after
taking into account all seven acquisitions done by FHI in the past 10
months). This, we believe, would not only put a strain on the
company’s balance sheet but also on its profitability/earnings on
account of high leverage or equity dilution over the medium term.
ƒ Recommend exiting the stock till better clarity emerges
There is a lack of clarity over the international company’s
profitability on account of insufficient data as the international
business is owned by promoters in their personal capacity. Also, the
valuations at which Fortis is going to acquire this international
business will be known only after its complete assessment by an
independent valuation agency. Hence, with this surprise move and
lack of clarity on the high value deal size, we recommend that our
investors stay away from the counter. We will revisit our rating once
better clarity emerge
Upcoming greenfield hospitals by Fortis Healthcare India
Fortis has been expanding aggressively through greenfield projects,
acquisitions and management contracts. It has completed a 350-bedded
greenfield hospital project at Shalimar Bagh and commenced operations
from September 2010. Its 414 bedded project at Kolkata also commenced
OPD and IPD services from September 2010. In addition, its Mulund
facility launched a state-of-the-art oncology block. The details of the other
ongoing hospital projects are mentioned herein below.
Exhibit 2: Upcoming projects
Sr no Location Beds
Capex (| cr)
Expected date of
commencement
1 Kangra 100 24.0 Q2FY12
2 Dehradun 50 15.0 Q3FY12
3 Gurgaon 450 325.0 Q4FY12
4 Bangalore 100 35.0 Q1FY13
5 Ludhiana-1 200 50.0 Q2FY13
6 Ludhiana-2 75 20.0 Q3FY13
7 Chennai 200 92.0 Q2FY13
8 Bangalore 120 18.0 FY13
9 Gwalior 200 72.0 FY14
10 Ahmedabad 200 50.0 FY14
11 Pune 350 63.0 FY13
12 Indore 250 50.0 FY14
13 Hyderabad 450 210.0 FY15
Source: Company, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
L a c k o f c l a r i t y o n d e al: A c o n cer n f o r m i n ori ty…
Fortis Healthcare’s board has recently approved the acquisition of
Singapore based firm Fortis Healthcare International (FHI), wholly owned
by promoters, in an all-cash deal to consolidate the group’s healthcare
business under one entity. We believe, though this move will make Fortis
the country’s largest healthcare chain by revenues (over $1 billion) with
over 12,000 beds, it would put pressure on the company’s profitability
and its balance sheet in the near term on account of the large deal size.
We also need to assess at what valuations, FHI is going to be acquired by
the company. Hence, due to lack of clarity over this deal with respect to
valuations and profitability, we recommend our investors exit from this
counter till better clarity emerges.
ƒ Deal may put strain on profitability and balance sheet
The company’s current interest coverage ratio stands at ~1.6x. The
company has recently acquired Super Religare Labs for | 803 crore
and also has ongoing greenfield projects worth | 1,024 crore that
are lined up for over the next 24 months. With this new deal
announcement, the company would be further required to pay ~|
2,000 crore to the promoters in cash (i.e. assuming at cost after
taking into account all seven acquisitions done by FHI in the past 10
months). This, we believe, would not only put a strain on the
company’s balance sheet but also on its profitability/earnings on
account of high leverage or equity dilution over the medium term.
ƒ Recommend exiting the stock till better clarity emerges
There is a lack of clarity over the international company’s
profitability on account of insufficient data as the international
business is owned by promoters in their personal capacity. Also, the
valuations at which Fortis is going to acquire this international
business will be known only after its complete assessment by an
independent valuation agency. Hence, with this surprise move and
lack of clarity on the high value deal size, we recommend that our
investors stay away from the counter. We will revisit our rating once
better clarity emerge
Upcoming greenfield hospitals by Fortis Healthcare India
Fortis has been expanding aggressively through greenfield projects,
acquisitions and management contracts. It has completed a 350-bedded
greenfield hospital project at Shalimar Bagh and commenced operations
from September 2010. Its 414 bedded project at Kolkata also commenced
OPD and IPD services from September 2010. In addition, its Mulund
facility launched a state-of-the-art oncology block. The details of the other
ongoing hospital projects are mentioned herein below.
Exhibit 2: Upcoming projects
Sr no Location Beds
Capex (| cr)
Expected date of
commencement
1 Kangra 100 24.0 Q2FY12
2 Dehradun 50 15.0 Q3FY12
3 Gurgaon 450 325.0 Q4FY12
4 Bangalore 100 35.0 Q1FY13
5 Ludhiana-1 200 50.0 Q2FY13
6 Ludhiana-2 75 20.0 Q3FY13
7 Chennai 200 92.0 Q2FY13
8 Bangalore 120 18.0 FY13
9 Gwalior 200 72.0 FY14
10 Ahmedabad 200 50.0 FY14
11 Pune 350 63.0 FY13
12 Indore 250 50.0 FY14
13 Hyderabad 450 210.0 FY15
Source: Company, ICICIdirect.com Research
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