MOSL: FORTIS HEALTHCARE (Buy)-RHT assets buyback to be value-accretive

Fortis Healthcare: RHT assets buyback to be value-accretive;

(FORH IN, Mkt Cap USD1.0b, CMP INR140, TP INR185, 32% Upside, Buy)

• Fortis (FORH) plans to acquire all the assets of RHT for INR46.5b. Net outflow for the company will be ~INR36b, as it owns ~30% stake in RHT (worth ~INR10-10.5b).
• RHT asset acquisition is expected to be value-accretive to the tune of ~INR30-40/share.
• We maintain our Buy rating on FORH, with an SOTP-based TP of INR185/share.
• The court case between promoters and Daichi remains a key overhang on the stock.

• FORH has announced that it plans to acquire the entire portfolio of assets of Religare Health Trust (RHT), listed in Singapore, at an enterprise value of INR46.5b (including debt of INR11.52b). FORH and RHT have entered into an exclusivity period of 60 days to execute a definitive agreement for the proposed transaction. RHT owns 12 clinical establishments, 4 greenfield clinical establishments and 2 operating hospitals.
• FORH owns a 29.76% stake in RHT. Thus, net outflow for the company would be ~INR36b (will receive ~INR10b as dividend from RHT). The company currently pays service fees of ~INR2.7b to RHT, which it will save post this transaction.
• RHT asset acquisition to be value-accretive: The deal valuation is ~13x FY18E EV/EBITDA, assuming net outflow of INR36b and service fee savings of ~INR2.7b. Besides this, FORH will save INR300m as minority interest for its 49% stake in FHTL and net interest cost of INR410m (FORH was paying ~INR750m of interest cost to RHT and was receiving ~INR340m of interest income from RHT). Given that we have valued the hospital assets at ~18x EV/EBITDA, the acquisition of RHT will increase EV of FORH by ~INR6.5b, in our view. Even after assuming dilution through fresh equity (share count increasing from 523m to 623m), our TP for FORH will increase from ~INR180 currently to INR215.