Upbeat on IHH following India Supreme Court decision
KUCHING: Analysts are feeling upbeat on IHH Healthcare Bhd after India’s Supreme Court determined it has not found nor indicated any wrongdoing by the group in terms of its investment into Fortis Healthcare Ltd (Fortis) and that the judgment supports IHH’s belief that its investment into Fortis was undertaken in “a fair and transparent manner”.
India’s top court had on Sept 22 reportedly ordered a forensic audit of a deal between Fortis and RHT Health Trust, and refused to lift the suspension imposed against IHH to proceed in acquiring another 26 per cent stake for up to INR33.5 billion (RM2 billion) in Fortis.
The court sought a probe into the sale of shares in Fortis by lenders and the transfer of money to RHT, on a petition filed by Japanese drug maker Daiichi Sankyo Co.
IHH said in the filing that it remains as Fortis’ largest shareholder with a 31.1 per cent stake, and the judgment “does not in any way alter its commitment” to grow its healthcare operations in India across all 82 hospitals in 10 markets.
The filing also clarified that three petitions were also disposed of with a direction to the High Court to consider issuing appropriate process and appointing forensic auditors to analyse the Fortis-RHT transactions, and other related transactions.
IHH Healthcare had, in 2018, acquired a 31 per cent equity interest in Fortis following a bidding war against local and foreign companies. This triggered
We feel upbeat post the management briefing, given that the near-term hurdle for IHH has been resolved.
RHB IB
a mandatory offer to increase its control to 57 per cent by buying shares from the open market.
This did not take place due to legal proceedings pending in India’s Supreme Court.
IHH added over the last quarter and throughout the pandemic, Fortis has anchored its claim as one of the leading healthcare platforms in India and IHH is committed to stand firm on Fortis’ side to continue this growth journey.
“We feel upbeat post the management briefing, given that the near-term hurdle for IHH has been resolved,” commented RHB Investment Bank Bhd (RHB IB) yesterday.
“However the lingering RHTFortis deal may continue to weigh on near-term investor sentiment until the final court order is released.
“Fortis’ share price has plunged by 17 per cent since the selldown on September 21. Prior to this selldown, the firm accounted for 7.7 per cent of IHH’s market cap based on the latter’s 31 per cent stake in the former.
“Based on our back-of-envelope calculation, the selldown on IHH is deemed as unreasonable, given the implied correction should be only 1.3 per cent – it has dropped 3.1 per cent since September 21. We maintain our equity holdings assumption for Fortis at 31 per cent in our valuation.”
RHB IB made no changes to its earnings estimate pending confirmation from the deal, reiterating its buy call and target price of RM7.42, as it has incorporated a zero per cent ESG premium/discount to its intrinsic value.
“If the MTO is successfully carried out, this would mean a potential four per cent upside to our current target price and three per cent upside to our 2023 core earnings.”
Looking at what’s next, Hong Leong Investment Bank Bhd (HLIB) observed that IHH remained committed to serve the India market, and has initiated discussions and seeking advices from authorities, regulators and legal counsels pertaining the outstanding MTO.
“On IHH’s end, relevant documents are ready to be filed once there is clarity on the next steps.
“On a separate note, as Turkey is deemed as a hyperinflationary environment and thus, the adoption of MFRS129 will result in a permanent uplift in asset value, given that the balance sheet is re-indexed to ensure comparability across financial statements.
“The higher asset value will also lead to a higher depreciation and amortisation charge in future reporting periods.
“In view of that, we have recalibrated our balance sheet (mainly adjusting our assumption on PPE’s carrying value) to reflect this change.”