Fortis Healthcare India Ltd., India’s second-biggest operator of hospitals, fell to the lowest in almost seven months after agreeing to buy the international business of its billionaire founders.
The combined entity will own 74 hospitals, and a network of medical facilities in Hong Kong, Australia, New Zealand, Vietnam and Sri Lanka, the company said in an e-mailed statement today. The company will invest $1 billion in expanding at home and overseas in the next three years, Chairman Malvinder Singh told reporters in New Delhi today.
Fortis fell 1.8 percent to the lowest since Feb. 24 after the company’s decision to reverse the plan to keep the two units separate. The acquisition by the Indian unit, which last year reported a profit margin of 14 percent before interest, taxes, depreciation and amortization, of the overseas one may not lead to increased value for shareholders, according Priti Arora, an analyst at Kotak Institutional Equities.
“I’m not clear why they are investing so much overseas,” Arora said. “The market is still under penetrated in India and there is room for lots of growth.”
The Indian and the overseas units each generate about $500 million in revenue, Singh said. An independent company will be appointed to determine the valuation for the transaction, Fortis Healthcare said in the statement.
Fortis Healthcare trades at 40 times estimated earnings, compared with 28 times for larger rival Apollo Hospitals Enterprise Ltd. (APHS), data compiled by Bloomberg show. The 18-member BSE India Healthcare Index is valued at 19 times earnings.
“This move doesn’t make Fortis a better stock to hold,” said Arora.
Fortis separated the overseas entity into Fortis Healthcare International Pte Ltd. in September last year, after the company lost its S$3.2 billion ($2.5 billion) bid to acquire Singapore’s Parkway Holdings Ltd.
“In a very short period of time we’ve been able to create a very substantial business internationally,” Singh told reporters in New Delhi today. “Moving forward there are huge benefits in terms of jointly leveraging medical capabilities, management capabilities and synergies.”
Billionaire Singh will be the executive chairman of the combined entity, which will be renamed Fortis Healthcare Ltd. (FORH) His brother Shivinder Singh will be executive vice chairman and Vishal Bali will be the chief executive officer, according to the statement.
The Singh family controls 81.5 percent of the company, according to stock exchange filings in June. About 60 percent of those shares have been pledged as collateral to lenders, according to a statement sent to the stock exchanges last week.
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