What Happened
On the heels of IHH’s first Indian acquisition (Continental Hospital) in Mar 15, IHH has acquired 73.4% of Global Hospitals for Rs12.8bn (which will be diluted to 64.4% over five years due to employee performance incentives), of which Rs2.65bn is an equity injection, Rs300m-400m will be used to pare down debt and the remainder for capex to increase the number of beds from 1,100 currently to ~1,900 (over five years). The deal is expected to be completed in three months.
What We Think
Minimal financial impact now. We do not expect this deal to contribute significantly to the group’s FY15-17 bottomline. In FY15, Global Hospitals recorded revenue of Rs6.5bn (+25% yoy, ~6% of IHH’s FY14) and average revenue per inpatient of Rs116k (+22% yoy, ~32% of Singapore’s FY14 average inpatient revenue, ~150% of Malaysia’s, ~79% of Turkey’s). We understand that its EBITDA margins are in the low-teens (Singapore: 23%, Malaysia: 32%, Turkey: 19%), and it is currently loss making, with interest costs (FY15 net debt: Rs3.9bn, with effective interest rates of ~15%) being the biggest drag.
What You Should Do
Reiterate Add. Our SOP-based target price rises to account for the acquisition.
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