IHH’s potential acquisitions to enhance group’s position in India

KUCHING: IHH Healthcare Bhd’s ( IHH) potential acquisition of a controlling stake in Fortis Healthcare ( Fortis) and SRL Diagnostics ( SRL) could significantly enhance IHH’s position in India and enable the group to enjoy greater economies of scale and scope.

According to the research arm of Maybank Investment Bank Bhd ( Maybank IB Research), Deal Street Asia has reported that IHH is buying a controlling stakein Fortis and SRL.

“IHH has not confirmed the transaction,” Maybank IB Research said.

Maybank IB Research noted that for the India-listed Fortis, IHH will first buy a 26 per cent stake and make a mandatory open offer to buy an equal stake from public shareholders to comply with local rules.

The research arm further noted that new capital injection into Fortis will be used by the company to buy back Religare Health Trust, a Singapore-listed business trust in which it owns a 30 per cent stake.

“This could save four billion rupees in service fees,” the research arm said.

“Separately, IHH will also acquire a controlling stake in unlisted SRL Diagnostics, a pathology lab chain from the Singh brothers. A value of 140 billion rupees has been agreed for Fortis Hospitals and SRL at close to 50 billion rupees, taking the combined value to 190 billion rupees.”

Maybank IB Research projected that this deal could significantly enhance IHH’s position in India and enable the group to enjoy greater economies of scale and scope, via an expanded network and greater discounts from procurement.

The research arm recapped that IHH acquired six hospitals via two acquisitions in 2015 and currently operates eight hospitals in India.

However, Maybank IB Research also listed risks to the deal which included overpaying as Fortis’s equity value (EV)/earnings before interest, tax, depreciaiton and amortisation ( EBITDA) valuation is at a notable premium of 27 per cent versus IHH and 20 per cent higher than TPG’s offer.

The research arm highlighted that other risks included execution in running a sizeable healthcare group in a big developing market and opposition from the court, in restricting the Singh brothers from selling their stakes due to their pending litigation with Japanese drug maker, Daiichi Sankyo.