Fortis To Sell 16.5% Stake

Fortis Healthcare has again proposed a divestment of a 16.48% of its promoters’ stake. Currently, promoters hold 81.48% of the company out of which, they are trying to offload 6.48% holding, to comply with the SEBI guideline directing companies to increase public participation. In addition to this, it has also proposed to sell another 10% of its promoters’ stake through a private placement. The 16.48% stake sale would generate Rs 780 crore at the current market price which the company would use to lower its debt.

Reports indicate that the private placement will take place at a negotiated price to generate USD 100 million (about Rs 550 crore). They also indicate that the company wants to raise around Rs 900 crore by offloading a 16.5% stake. From this data we believe that the company is looking to value its shares in a range between Rs 135-146 which is at a 15-25 % premium to its current market price of Rs 117. This looks like a good opportunity to generate a 15-25% return within a short period. If one holds the stock for a longer duration we don’t see any value addition happening as this opportunity sounds like a quick short term trading one.

This group has been regularly buying and selling its businesses. It recently sold its Australian dental business it had acquired two years ago, after it failed to perform up to its expectations. It has also raised USD 480 million through an IPO of its subsidiary in Singapore very recently.

The stock is trading very close to its yearly high of Rs 119.50 but overall it has underperformed its peers. The company has done a lot of acquisitions in the last few years. None of these acquisitions has created any value for its shareholders. Though it now wishes to grow organically, we are concerned of its regularity in buying and selling of businesses. There emerges every probability that it may sell some other business in future too. The stock has shown a good run up in the second half of the year but these gains are not backed by any strong fundamentals.

We had earlier mentioned that, the company may come up with an OFS very soon. We had also carried a detailed analysis of Fortis Healthcare in our magazine wherein our call to investors was a clear exit. The counter does not look very attractive due to its expensive acquisitions which has led to a high debt to equity ratio. We maintain our stance to avoid the scrip.

We spoke with the Fortis Healthcare's Spokesperson who declined to comment on the Private placement, he however confirmed that the company will surely comply with the SEBI guidelines of having a mandatory public holding of 25% of its capital.