Religare Health Trust
Positive on growth, wary of forex
▊ We brought RHT on a non-deal roadshow in KL and investors were largely positive on the growth prospects and stability of the assets. Concerns continue to stem from forex exposure. RHT trades at c.10% FY14 yield and 1.0x P/BV. We maintain our DPU estimates and DDM-based target price (discount rate of 11.7%). Continue rating as Add with surprise in earnings deliveries and acquisition as catalysts.
We brought CEO, Mr Gurpreet Dhillon, and CFO, Mr Pawanpreet, on a non-deal roadshow in Kuala Lumpur, Malaysia. Discussions with clients mainly centered on 1) growth of its underlying assets 2) forex fluctuations / hedges and 3) potential acquisition of Mohali.Management highlighted its organic growth capabilities which stems from ability to increase operational bed, ramping up of Gurgaon and green/brownfield assets. Forex remains investors’ main concern. RHT has a policy of hedging 12 months of distributions on a rolling basis and will continue to do so. Further information on Mohali acquisition was not disclosed, but management highlighted that the deal must be yield accretive for their consideration.
What We Think
RHT’s organic growth is led by built-in fixed base fee escalations and variable fees tied to the hospital revenues. The ramping up of Gurgaon’s operations has been progressing well and should be a positive for FY15 as it starts contributing variable fees (7.5% of hospital revenues). The potential acquisition of Mohali is a near term catalyst as it should help to provide greater stability to RHT in terms of performance and cash flow. Given the group’s low gearing of c.10%, we believe the potential acquisition will be fully funded by debt. Assuming a 60% operating margin, 15% withholding tax and 5.5% financing cost, the deal requires an 11% revenue yield to be yield accretive. We have yet to factor this acquisition into our model.
What You Should Do
Share price has corrected since the weakening of Rupee and headline yields currently stands at c.10%, higher than S-REITs/BTs average of 7.0%. We believe some of the risks have been priced in, and maintain our Add rating.
Publish date: 06/12/13