MOSL: FORTIS HEALTHCARE (Buy)-RHT buyback can create significant value
​Fortis Healthcare: RHT buyback can create significant value
(FORH IN, Mkt Cap USD1.4b, CMP INR204, TP INR250, 23% Upside, Buy)
Media reports have been highlighting the possibility of fresh equity infusion in Fortis Healthcare (FORH), which could be used to buy back Religare Health Trust (RHT). According to media reports, a few private equity firms are already conducting due diligence. In this report, we have tried to analyze the impact of such transaction on the fair value of FORH.
In case of RHT buyback, TP will increase by ~20% to INR300: RHT is listed in Singapore with market cap (in terms of INR) of ~INR35b. Given that FORH will pay business trust (BT) cost of >INR4b to RHT in FY19E, RHT (at current market cap) trades at 10.75x FY19E EV/EBITDA, significantly below Hospital asset valuation of 20-22x forward EV/EBITDA. We believe RHT acquisition will increase EV of FORH by ~INR60b. FORH owns ~30% stake in RHT, and it will thus have to buy back the remaining stake worth INR25b, for which it may look to raise fresh equity. Even after assuming dilution through fresh equity (share count increasing from 523m to 642m), our target price for FORH will increase from ~INR250 to INR300.
SRL demerger on track; separate listing expected in 2QFY18: Meeting of shareholders is scheduled on 27 April 2017 to approve SRL demerger. Post shareholder approval, FORH will approach the National Company Law Tribunal and the SEBI. According to FORH, the demerger process will complete by end-July 2017/August 2017 beginning. We believe SRL demerger, coupled with stake acquisition in FHTL and asset sweating in existing hospitals, will help unlock significant value for FORH’s shareholders.
Fortis Healthcare Limited is an integrated healthcare delivery service provider. The Company is engaged in establishing, maintaining, operating, running, managing or administering hospitals, medicare, healthcare, diagnostic, health aids and research centers. The Company operates through the Clinical Establishments Division and the Medical Services Division. The Clinical Establishments Division owns, maintains and operates clinical establishments (being fully air conditioned institutions established, and specifically customized and duly fitted with all fixtures, fittings, certain medical equipment and infrastructure required for running and operating the hospitals), as well as provides services under outpatient division and radio-diagnostic services. The Medical Services Division undertakes the business of running the hospital operations, including in-patient services and emergency services. The Company operates its healthcare delivery services in India, Dubai, Mauritius and Sri Lanka.
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Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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