Lingering suspense for Life Healthcare in India
● It has been a tough year for Life Healthcare as it navigates its course through changes in the health-care landscape in SA and ponders whether to sell its stake in India.
With just more than two months before it releases its annual results in November, it is still unclear which way Life Healthcare will go regarding its 49.7% stake in Max Healthcare, one of India’s biggest hospital groups. Life Healthcare bought the first part of its stake, 26%, in 2012, increasing it to the current shareholding in 2016.
Political pressure to lower costs and increase regulations in India has affected hospital profits in the past year, resulting in talk that the hospital group is considering offloading its shares to private equity firms.
Speaking on the possible sale, the company’s CEO, Shrey Viranna, said the discussions about the hospital group selling its stake or staying in India were “too protracted” in his view.
However, he could not share further details on the possible sale, for which Life Healthcare issued a cautionary note in November last year.
“I’m hoping that [it’s] something we will have an announcement on at year end,” said Viranna from the group’s Johannesburg office last week.
Viranna became CEO of Life Healthcare in February this year, taking the reins from acting CEO Pieter van der Westhuizen.
It seems the group is applying a longgame approach with regard to its sale of Max Healthcare, which analysts say is unlikely to take place without the right price.
Chris Willis, an analyst at All Weather Capital, said shareholders “want them to dispose of the asset and I think management doesn’t have any attachment to it, so I think they will look to dispose of it, but obviously it needs to be at the right price”.
He understands that there are a handful of private equity players who are interested in the stake, he said.
The group is said to have been offered between R4bn and R5bn for its stake.
The group’s interim results earlier this year revealed a disappointing performance by Max Healthcare, which it attributed to the Shalimar Bagh incident in India, in which a newborn was wrongfully declared dead at one of its hospitals.
Life Healthcare’s India operation lost R67m partly as a result of the incident.
The deputy CEO of Sentio Capital Management, Rayhaan Joosub, said the hospital company’s cautionary note meant it was confident of a sale.
He added that he did not expect the coming results to contain too many surprises and that the issues facing the hospital group were not unique, as all groups, were facing regulatory and pricing challenges.
In SA, it was pointed out at the Competition Commission’s recent health market inquiry that Life Healthcare, together with SA’s other big hospital groups, Mediclinic and Netcare, hold about 90% of the country’s private hospital beds.
Viranna, who insists he is cognisant of the challenges the group is facing, said it would continue to focus on complementary services in areas such as mental health, rehabilitation, oncology and renal dialysis services overseas, and is looking to make that an integral part of its business in SA.
At the heart of this, said Viranna, are to be the group’s continued partnerships with the government, which it hopes to strengthen with SA’s impending National Health Insurance.
“If you accept that health care is a tough place and you accept that in most markets there will be challenging trading environments, either because of competition or tariff pressures or regulatory changes.
“. . . is it an evolving and changing environment?
“Absolutely. Does that make it tough? Yes, but that’s the business we live in and the world we have chosen to be in, which is why we don’t see that as a risk, we see that as part of doing business as a private hospital,” Viranna said.
Asief Mohamed, chief investment officer at Aeon Investment Management, did not share the CEO’s positivity, saying that Life Healthcare, like other hospital groups in SA, has been having a “disastrous” time.
Over the past five years, Life Healthcare’s shares have dropped 24%, while Mediclinic, which listed on the JSE in 2016, and has been beset by concerns about its international operations, has seen its stock plunge 54%. Netcare has bucked the weakening trend, gaining 16.08% over that period.