Fortis Healthcare remains a critical asset for IHH's global plans

In the fourth quarter of 2018, IHH was able to consolidate one month of Fortis in its India business
Malaysian health care major IHH Healthcare’s open offer to pick an additional 26 per cent in India’s leading hospital chain Fortis Healthcare remains in limbo with the Supreme Court ordering a status quo on the deal. A look at IHH’s latest financials shows that Fortis is a critical asset not only in its India portfolio but also in its global plans. 

In the fourth quarter of 2018, IHH was able to consolidate one month of Fortis in its India business and that led to a significant jump in patient volumes. 

In India, inpatients’ admissions grew by 140.5 per cent, with the consolidation of Fortis to the group’s income statement. However, revenue intensity was down 6.9 per cent as Fortis’ current revenue intensity is lower than the IHH's existing operations in India. IHH thus plans to add more muscle to specialties (oncology, neurology, cardiology, organ transplant) to boost revenue intensity. 

An e-mail sent to IHH remained unanswered. 

For the financial year ended December 31, 2018, IHH registered a net profit of 627.69 million Malaysian Ringgit (nearly Rs 1,053 crore). The revenue stood at Rs 19,353 crore. While the revenue was up 3.4 per cent year on year, its earnings were down 35.3 per cent. This is primarily because in the Q3 the company suffered a net loss of around Rs 1,800 crore because of non-lira deno­minated loans in Turkey that resulted in forex losses. IHH operates 15,000 licensed beds in 82 hospitals across 11 countries. 

In Q4, Fortis contributed Rs 364.5 crore to IHH’s revenues. In comparison, the rest of its Indian operations (it operates seven hospitals and one feeder centre in India across Global, Continental and Gleneagles brands) saw a 14 per cent sequential and a 21 per cent year on year decline in revenue. Fortis operates 29 hospitals in India and thus adds significant volumes to IHH’s India plans. 

In Turkey, IHH is working to deleverage Acibadem’s balance sheet and manage its foreign currency volatility. IHH Chief Exec­utive Officer Tan See Leng has said as a strategy it will focus on cash flow generating markets such as that of Singapore and Malaysia, medium-term growth mome­ntum from Turkey, and the longer-term growth opportunities of India and China. 

It is adding greenfield facilities in China and Yangon, and expanding bed capacity in Malaysia. In India, it added the Fortis chain of 29 hospitals to its existing seven. To boost its presence in  Mumbai, it is looking at taking over the city-based Jaslok Hospital, sources said. 

“India and China are part of IHH's long-term strategy. Its most profitable operations are from Singapore and Malaysia. In Turkey, it has been facing some issues on account of currency volatility. Fortis helped it to plug the gap in India,” said a source.  

IHH has indicated that it remains committed to the hospital chain where it has picked a 31.1 per cent for Rs 4,000 crore in November. It is, in fact, putting together its team at the helm to run Fortis — a new chief financial officer (Vivek Goyal) and a new managing director and chief executive officer (Ashutosh Raghu­vanshi). It plans to have a leaner top management team and is making structural changes in the hospital’s management structure. “It wants to have a more de-centralised system of admin­istration and operations at a day-to-day level by empowering the local managers,” said a source. 

“We have also identified key initiatives jointly with the Fortis team over the past three months and will be working closely to execute a disciplined turnaround plan. Fortis has also successfully completed the acquisition of the RHT Health Trust’s assets on January 15 for Rs 4,670 crore. This will translate into significant rental cost savings being paid to RHT,” Tan, who is also the non-executive director of Fortis, said during a Q4 earnings call. Around Rs 300 crore of rental cost savings is expected per year. 

In the near-term, however, IHH is expected to see some headwinds in Fortis, like exits of managing doctors. Rece­ntly, a liver transplant surgeon quit Fortis among others. Banks, too, are in a wait-and-watch mode hoping for the legal uncertainties over the deal to end soon before they can extend line of credit, said a source. 

 “It was significant. He was a liver transplant surgeon. So, it is a combination of the case mix and also the number. On top of that, we have also gone into oncology, neurosurgery and cardiology. These new disciplines will take time to ramp up,” Tan said. 
Four days before IHH’s open offer to acquire 26 per cent from the public shareholders could launch, the top court asked all parties to maintain status quo, with respect to the sale of Fortis Healthcare’s stake to IHH Healthcare. The top court’s order came on a plea moved by Daiichi Sankyo, which alleged that the Singh brothers and Indiabulls had created fresh encumbrances for 1.7 million of the total 2.3 million shares of Fortis despite the apex court forbidding it.

IHH has put Rs 3,400 crore in an escrow account for the open offer which is now lying stagnant.

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