Fortis Healthcare - Dental Corporation divestment - a positive move! - IDFC

Event

Fortis Healthcare Limited (FHL) has announced divestment of its 64% stake in Dental Corporation Holdings, Australia (DC) to BUPA for a valuation of AUD270m (~Rs15.5bn). The transaction is expected to be completed by Mar-13 subject to shareholder and regulatory approvals.

Transaction details

DC came into FHL fold with the acquisition of Fortis International. FHL invested ~AUD270m for 64% stake in a series of transactions. In H1FY13, DC reported Rs8.4bn revenues with ~18% EBITDA margins. The divestment is aligned to company's strategic priority of catering to complex clinical work at the higher end of medical delivery spectrum. Further, FHL was unable to expand the DC model to geographies beyond Australia and New Zealand as planned.

Valuations & view

FHL's management continues to diligently pursue deleveraging as it seeks to undo the balance sheet damage caused by the ~$940m debt-funded buyout of erstwhile promoter-owned international healthcare entities. The DC transaction, along with the recent listing of Religare Healthcare Trust in Singapore, will enable FHL to reduce debt (~Rs44bn), resulting in D/E of ~0.6x by Mar-13E (~Rs24bn). While we have always liked FHL's domestic franchise, we had concerns on the gearing and increasing proportion of international business with limited synergies with Indian healthcare assets. We view this transaction positively as it will help address both our concerns and lead to value unlocking in FHL's domestic healthcare franchise in the medium term. However, our FY14E EPS gets downgraded by 60% mainly on account of the divestment. Upgrade to Neutral with revised price target of Rs120.

Source : Equity Bulls

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