Fortis may steal the thunder in healthcare space: Udayan

Below is the edited excerpts of Udayan Mukherjee's views on Fortis
 
Q: What about the Fortis' acquisition, big one?

A: It's a big strategic move. I do not know how the market will react to it because there is a substantial amount of money involved so the near-term reaction for the market is often about how will it be funded, how much balance sheet stretch will be required. It's more than Rs 3,000 crore, inevitably there will be equity dilution at some point from Fortis. So the market will try and price all those near-term things in because given Fortis' size - not that they are strapped of cash because as a group they have a lot of money - it (promoters) will require to pump in some money into Fortis , which will require some equity issuance again. It could be a preferential placement to promoters as well. Therefore how much debt it needs to take on; and the deal is not cheap. When PE multiples are huge, I think it's well in excess of 30-35 times. So it's a big asset; it's Asia's largest healthcare chain so you wouldn't have expected it to come very cheap. They have got it at a high and extended price but strategically it makes a lot of sense. You have to be a fan of this space, this whole healthcare vertical. I think there are only a couple of companies that are positioning themselves for the big game because this will be a big business in five-seven year's time and longer-term investors may actually look at Fortis. I think Fortis is probably stealing a bit of a march over Apollo Hospitals on that front.

Q: You were talking about the retail story a couple of weeks back and it's interesting that it's opening up in these niche spaces. First it was films and film exhibition and now it's hospital, healthcare that kind of thing. Jubilant of course is Jubiliant.

A: They will not be very niche stories. I think at some point they will become very large spaces on their own. Every investor that you talk to about India, the first thing they say is consumer, consumer and consumer. There are many ways to play consumer; autos have done very well, Unilever is not doing very well but these are the new spaces which will probably light up over the next five-seven years.  Everybody is dreaming big about power; so power has become a big word in the market that lot of wealth will be created. I think a lot of wealth will be created in some of these stories as well. This is not a recommendation for Fortis but I think they are doing all the right things by investing aggressively in a space like this. While there was a lot of apprehension around the Rs 100 mark for Fortis because of stretched valuations, you can see what was done in the last few months. I think it's up some 60% in the last three-four months so it's quietly being noticed by the market and it's making the right moves.

Q: Equally aggressive on domestic as well, the Wockhardt acquisition?

A: I think it's a good switch that the Singhs have done - the Singh brothers. From Ranbaxy , a space which probably has seen its peak and is seeing intense competition in the West, to a space which is far more nascent; not too many players, and you can actually grow it from size. So I think that big switch from Ranbaxy to invest in financial services and healthcare verticals was a clever move.