India may soon have a new number one in private hospital chains. Privately-held Manipal Health, backed by private equity player TPG Capital, has decided to merge with Fortis (pdf) and create the country’s largest chain by revenue, toppling the current leader Apollo Hospitals.
TPG-backed Manipal has offered Rs3,900 crore (about $600 million) to merge both the hospital businesses, and to buy a 20% stake in SRL, Fortis’s diagnostics unit. SRL is the country’s second-largest chain of pathology labs. Subsequently, Manipal will buy another 30.9% stake from other SRL investors, according to a statement from Fortis to the stock exchanges. The merger, subject to regulatory approvals, will take between eight and 12 months to be completed, Fortis CEO Bhavdeep Singh told the media.
Put together, the merged entity will have an annual revenue of Rs5,230 crore, according to numbers declared until the December 2017 quarter, financial services firm India Infoline (IIFL) said. Apollo Hospitals had a revenue of Rs3,655 crore for the same period.
The merged entity will have 41 hospitals in India and four hospitals overseas, with over 11,000 installed beds, Fortis said in a statement. Apollo has about 10,000 beds across 70 hospitals.
India’s healthcare market is currently worth $100 billion. Deloitte Touche Tohmatsu India has predicted that, with increased digital adoption, it will grow to $280 billion by 2020 and $372 billion by 2022. Hospitals and diagnostic centres in the country attracted foreign direct investment (FDI) worth $4.83 billion between April 2000 and September 2017, according to data released by the department of industrial policy and promotion (DIPP).
This deal was something investors were looking forward to. “This is a positive announcement on the counter (Fortis) which has been impacted by several issues over the past one year,” according to IIFL.
However, Manipal’s much-awaited offer has apparently underwhelmed Fortis’s minority investors. The Fortis stock tumbled nearly 13% in early trade on March 28.
Investors believe that Fortis, currently in the eye of a storm, has been shortchanged. Its current promoter, Malvinder Singh, is in the dock for allegedly siphoning off funds from the company to pay off his personal liabilities. Singh, along with his brother Shivinder, owns a 5.8% stake in Fortis. The duo owes Rs3,500 crore to Daiichi Sankyo after being held guilty by a court for misleading the Japanese drug major during the 2008 sale of their pharmaceutical company Ranbaxy.
There is also uncertainty over Fortis’s financials. Deloitte had raised concerns over the reliability of its declared financial numbers. Credit rating agencies ICRA and CARE have downgraded their ratings for Fortis.
However, CEO Singh tried to reassure the market. “We believe this deal will change the face of Indian healthcare over the long term,” he said. “When you do that, you create value for shareholders.”