Issue objective
Fortis Healthcare (FHL) has already raised around Rs 153.69 crore through the pre-initial public offer (IPO) placements and further plans to raise around Rs 420-503 crore, depending on the price band. The company intends to use the issue proceeds:
Fortis Healthcare (FHL) has already raised around Rs 153.69 crore through the pre-initial public offer (IPO) placements and further plans to raise around Rs 420-503 crore, depending on the price band. The company intends to use the issue proceeds:
- to part finance (ie Rs 100 crore) the construction and development of a new hospital by its subsidiary OBP Ltd in New Delhi;
- to refinance Rs 560 crore availed for the acquisition of Escorts Heart Institute and Research Centre Limited (EHIRCL);
- to prepay Rs 70 crore of short-term loans; and
- for the general corporate and issue expenses.
Company background
Fortis Healthcare (FHL), incorporated in 1996 by the Ranbaxy Laboratories group, is one of the largest private healthcare companies in India. The company commissioned its first hospital at Mohali in 2001. Since then, FHL has expanded its operations by opening multi-specialty hospitals (including some with super-specialty centres of excellence), a boutique style hospital and various satellite and heart command centres.
Fortis Healthcare (FHL), incorporated in 1996 by the Ranbaxy Laboratories group, is one of the largest private healthcare companies in India. The company commissioned its first hospital at Mohali in 2001. Since then, FHL has expanded its operations by opening multi-specialty hospitals (including some with super-specialty centres of excellence), a boutique style hospital and various satellite and heart command centres.
The company currently has a network of 11 hospitals primarily in north India, 15 satellite and heart command centres in hospitals across the country and one heart command centre in Afghanistan. Out of the network of 11 hospitals, six are owned by the company, one hospital is in collaboration with the government of Chattisgarh and four hospitals are under operation and maintenance (O&M) contract.
In September 2005, the company acquired 90% interest in Escorts Heart Institute & Research Centre (with three majority-owned hospitals in north India, a fourth hospital in collaboration with the government of Chhattisgarh and 10 satellite and heart command centres) for Rs 585 crore. The acquisition has more than doubled FHL's gross income and increased its expertise and prominence, especially in the cardiac care specialty area.
FHL's hospital network consists of multi specialty "spoke" hospitals, which provide comprehensive general healthcare to patients in their local communities, and super specialty
"hub" hospitals, which provide more advanced care to patients, including patients from its own "spoke" hospitals as well as other hospitals in the surrounding areas.
Most of FHL's hospitals are multi-specialty hospitals (covering secondary and tertiary healthcare), while some are superspecialty "centres of excellence" providing quaternary
healthcare. The key specialty areas of the company include cardiac care, orthopedics, neuro-sciences, oncology, renal care, gastroenterology and mother and child care.
FHL has approximately 1,490 inpatient beds in use across the network of 11 hospitals, with capacity to increase the inpatient beds to approximately 1,790. In the nine months ended December 2006, the hospitals performed over 4,500 heart surgeries, 4,000 angioplasties and 12,500 angiographies. During fiscal 2006, the hospitals performed over 5,000 heart surgeries, 5,000 angioplasties and 15,000 angiographies.
Issue details
Isuue open: 16-Apr-2007
Issue close: 20-Apr-2007
Offer size: Rs 420-503 cr
Issue size: 4.57 cr
Price band: Rs 92-110
Net issue:
In September 2005, the company acquired 90% interest in Escorts Heart Institute & Research Centre (with three majority-owned hospitals in north India, a fourth hospital in collaboration with the government of Chhattisgarh and 10 satellite and heart command centres) for Rs 585 crore. The acquisition has more than doubled FHL's gross income and increased its expertise and prominence, especially in the cardiac care specialty area.
FHL's hospital network consists of multi specialty "spoke" hospitals, which provide comprehensive general healthcare to patients in their local communities, and super specialty
"hub" hospitals, which provide more advanced care to patients, including patients from its own "spoke" hospitals as well as other hospitals in the surrounding areas.
Most of FHL's hospitals are multi-specialty hospitals (covering secondary and tertiary healthcare), while some are superspecialty "centres of excellence" providing quaternary
healthcare. The key specialty areas of the company include cardiac care, orthopedics, neuro-sciences, oncology, renal care, gastroenterology and mother and child care.
FHL has approximately 1,490 inpatient beds in use across the network of 11 hospitals, with capacity to increase the inpatient beds to approximately 1,790. In the nine months ended December 2006, the hospitals performed over 4,500 heart surgeries, 4,000 angioplasties and 12,500 angiographies. During fiscal 2006, the hospitals performed over 5,000 heart surgeries, 5,000 angioplasties and 15,000 angiographies.
Issue details
Isuue open: 16-Apr-2007
Issue close: 20-Apr-2007
Offer size: Rs 420-503 cr
Issue size: 4.57 cr
Price band: Rs 92-110
Net issue:
- QIBs* 60% of net issue size
- Non-institutionls 10% of net issue size
- Retail individuals 30% of net issue size
- Note: *5% allocation for mutual funds
Investment positives
- Brand equity to support growth
- Well placed to exploit strong industry growth
Investment concerns
- Pending litigation weighs
- Operating losses despite higher occupancy
Valuation and view
Fortis Healthcare offers its shares at a price band of Rs 92-110, which leads to the market capitalisation of the company to Rs 2,085-2,493 crore. The valuation of the company seems high, as FHL acquired 90% in EHIRC in September 2005 for Rs 585 crore (valuing EHIRC at Rs 650 crore). EHIRC presently contributes around 60% of the consolidated revenue. Thus, the total value of the company would be around Rs 1,083 crore (ie Rs 650 crore x 100/60).
So far as the peer group comparison is concerned, Apollo Hospital Enterprises is the only listed company. The market capitalisation of Apollo, which is an established player with
20 hospital, years of track record, 2,553 number of beds and huge expansion plan, is Rs 2,570 crore. At this valuation Apollo commands a high TTM P/E of 37x. The premium valuation is because Apollo Hospitals is the only available stock in the growing domestic healtcare industry.
Verdict: SUBSCRIBE
Fortis Healthcare offers its shares at a price band of Rs 92-110, which leads to the market capitalisation of the company to Rs 2,085-2,493 crore. The valuation of the company seems high, as FHL acquired 90% in EHIRC in September 2005 for Rs 585 crore (valuing EHIRC at Rs 650 crore). EHIRC presently contributes around 60% of the consolidated revenue. Thus, the total value of the company would be around Rs 1,083 crore (ie Rs 650 crore x 100/60).
So far as the peer group comparison is concerned, Apollo Hospital Enterprises is the only listed company. The market capitalisation of Apollo, which is an established player with
20 hospital, years of track record, 2,553 number of beds and huge expansion plan, is Rs 2,570 crore. At this valuation Apollo commands a high TTM P/E of 37x. The premium valuation is because Apollo Hospitals is the only available stock in the growing domestic healtcare industry.
Verdict: SUBSCRIBE
