Fortis Healthcare: Going international
While the acquisition of Parkway Holdings will significantly expand Fortis’ healthcare business, valuations are on the higher side.
Funding for the deal shouldn’t be a concern considering that Fortis has shareholder’s approval to raise about Rs 1,200 crore, some cash balances and warrants pending conversion.
With Parkway’s 3,400 beds, Fortis’ bed count will reach 10,000, making it the largest healthcare provider in India and in some South East Asian markets. Notably, Fortis will gain control (TPG was the single largest shareholder) over a profitable operation.
In CY09, Parkway had profits of $84 million (Rs 382 crore) on sales of $700 million, with operating profit margins of 24 per cent. The Fortis management believes that the Indian operations will benefit from Parkway’s skill sets and technology, in addition to the opportunity of the healthcare tourism market in the region.
While the deal may bear fruit in the long run, it isn’t expected to add meaningfully to Fortis’ bottomline in the near term, given the interest expenses the company will incur on the debt it takes for the acquisition.
Analysts believe that the price paid (14 per cent higher than Parkway’s closing price on March 11) was on the higher side. A Citi report says that the deal, which values Parkway at $2.8 billion, works out to an expensive 23 times and 21 times CY10 and CY11 EV/Ebitda estimates, respectively. Though the two markets are different, Fortis is paying about Rs 3.7 crore a bed (EV/bed), while those of its Indian operations are under Rs 1 crore, and a bed in a greenfield facility would have cost about Rs 75-80 lakh a bed.
While analysts say that Fortis could be a good long-term bet, it is currently expensive (at Rs 181) and trades at a much higher premium than its nearest competitor, Apollo Healthcare.
With contributions from : Puneet Wadhwa and Ram Prasad Sahu