Religare Health Trust
Results in line, acquisition in sight
▊ 2QFY14 results were largely in line. Underlying revenue growth was weighed down by rupee depreciation, which remains the key risk for RHT. The potential acquisition of the Mohali Clinical Establishment is noteworthy but inconclusive given the lack of details. At 50% of our FY13/14 forecast, 1H DPU broadly met our and consensus expectations. Our DDM-based target price (discount rate of 11.7%) remains at S$0.93 after we fine-tune FY14-16 DPUs. We maintain our Outperform rating, with catalysts coming from acquisitions and earnings delivery.
Improved performance in Rupee terms
Net service fee and hospital income in rupee terms rose 4.3% qoq, largely caused by higher variable fee and hospital income. Much of this was attributable to the summer months, which brought common communicable diseases such as dengue fever which requires longer stays but is a low income-generating disease. This raised the occupancy rate to 86% but reduced ARPOB by 2.4%, increasing variable fee and hospital income by c.8%.
Rupee concern weighs
Rupee weakness remains one of the key risks for RHT. Factoring in the rupee depreciation, net service fee and hospital income declined 5.3% qoq. RHT maintains its policy of hedging two distributions on a 1-year forward basis. The average contracted hedging rate for FY14 is Rs47.28:S$1. With the current exchange rate at Rs50:S$1 and the hedging premium rising, we expect earnings to experience continued pressure from the weakening rupee.
Acquisition in the horizon
Management is in discussions to acquire the Mohali Clinical Establishment, located in Punjab, India and operated by Fortis Healthcare. This is a stable asset with 12 years of operating record. It is Fortis’s second largest hospital by FY12-13 revenue. There should be greater clarity in the next 3-4 months.