Fortis Healthcare share price slips 4%; should you buy?
Fortis Healthcare share price slipped nearly 4 per cent on Friday after its board approved binding offer from Hero-Burman family offices. The consortium will infuse Rs 800 crore through a preferential allotment of equity shares at Rs 167 per share and Rs 1000 crore through warrants at Rs 176 per share.
Even as the healthcare firm is all set to get a credible management, investors appear apprehensive as the stock logged lacklustre performance all through this year as the bidding war went on. The Fortis Healthcare stock lost 4.7 per cent so far this year as of Thursday’s close.
Global brokerage JP Morgan believes progress on any deal could help improve clarity on the eventual business strategy and that should be positive for the stock. Further, continued improvement in operating performance of the hospital and diagnostic business will also help increase investor confidence in the long-term value in the asset, it said.
JP Morgan has an overweight rating on the stock with a target price of Rs 225 by September 2018.
"We value Fortis Healthcare on a SOTP basis to arrive at a Sep-18 target price of Rs225, as we value the Indian hospitals business at 17.8x EV/EBITDA, which is on par with the Asian hospitals’ peer group average, given similar demographics and growth profiles. We value FORH’s share in its diagnostic business at 20.5x EV/EBITDA, which is at a discount to other listed diagnostic players," said JP Morgan in a research report.
According to the healthcare major, the entire exercise for selecting the Hero and Burman consortium involved a process that witnessed "deliberation and recommendation" by an independent Expert Advisory Committee (EAC).
"The Board considered the views of the EAC, financial and legal advisors, and following extensive discussions arrived at this decision," the company said in a late night statement on Thursday.
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The EAC comprised of Deepak Kapoor, former Chairman of PWC (India) and Lalit Bhasin, Chairman of the Indian Society of Law Firms, along with two financial advisors - Standard Chartered Bank and Arpwood Capital - while Cyril Amarchand Mangaldas were the legal advisors.
Other firms in the takeover battle include Malaysia's IHH Healthcare, a consortium of Manipal Hospitals and TPG Capital, Radiant Life Care, backed by KKR & Co , and China's Fosun International.
The keen interest in Fortis, which runs some 30 hospitals in India, comes as investors look to tap soaring demand for private healthcare in the country against the backdrop of a stretched public healthcare system.
Private hospitals could also be boosted from Prime Minister Narendra Modi's plans to implement Ayushman Bharat, a healthcare programme aimed at providing insurance cover to about half of India's population.