"We knew much of what has been disclosed by the company as part of earnings, but we will take comfort only if it has a seal of the statutory auditor," said a bidder
The delay in declaring audited accounts of Q4 and FY18 by Fortis Healthcare is sending jitters to bidders who are in race to buy the beleaguered healthcare provider.
"We knew much of what has been disclosed by the company as part of earnings, but we will take comfort only if it has a seal of statutory auditor," said a bidder on condition of anonymity.
"The board has assured us that they will complete the audit as soon as possible, and the audited numbers will be largely reflecting the one released by the company," the bidder said.
Four bidders — Manipal-TPG consortium, Munjal-Burmans, IHH Healthcare and Radiant Life Care — were shortlisted to do due-diligence and submit bids.
The Fortis board on Wednesday declared Q4 and FY18 results, after postponing it thrice. However the accounts were not reviewed by the statutory auditor.
The company said it is trying to release audited accounts as soon as possible.
"We are fully intending to release the audited financials on Monday but what we had to do, as a result of conversations with the auditors, we had to take much more involved effort in really understanding the controls and process framework within the company," Ravi Rajagopal, chairman of Fortis board, said in company's earnings call on Wednesday.
"You can understand this process will take matter of not weeks but some days, and which is why we have decided in the best interests of everyone, including our investors, to release a set of unaudited results," Rajagopal said.
Rajagopal said he is not expecting any material change in the final set of numbers (audited numbers).
"We have said that with some degree of confidence, having seen the extent of audit that's been completed, it's been near complete I would say but for the assurance the directors are seeking personally around the robustness of controls," Rajagopal added.
The delay in declaring results is also impacting the timelines of the bidding process. The last day to submit bids was originally scheduled on June 14, but was extended by two more weeks to June 28 due to delay in release of audited accounts.
The board said it could further get delayed as the process of submission of bids is linked to the unveiling of audited numbers.
Singh brothers' claim on brands
Another finding that could potentially impact prospective buyers is Singh brothers — the erstwhile promoters — claiming the ownership of the brands Fortis, SRL and La Femme and demanding dues worth Rs 250 crore from the company for using those brands.
Singh brothers already got an ex-parte order from a Delhi district court that says any transaction undertaken by defendants, in favour of any other party, affecting the interest of the claimant shall be subject to orders passed in the said suit.
The brands are owned by a company related to Singh brothers, and Fortis has entered into a licensing agreement to use those brands for a period of nine years.
The company tried to downplay the notices, saying it's not anticipating any change regarding the terms anytime soon.
"Some of the bidders, who are relying on Fortis brands, could be in for trouble if Singh brothers try to play dirty," said the above bidder.
Any adverse litigation could potentially delay the sale process as well.
Deterioration of Finances
The company posted a net loss of Rs 932 crore in Q4FY18 largely due to provisions and impairments, but it's also visible that the company's operational performance has been under strain.
The earnings before interest, tax, depreciation and ammortisation (EBITDA) of the company fell 10.8 percent to 14.4 percent in Q4FY18.
EBITDA of hospital business, that constitutes four-fifths of company's revenues of Rs 4,537 crore, has been flat at 12.1 percent in Q4. The diagnostics business saw sharp drop in EBITDA margins from around 20 percent to 15.6 percent in Q4FY18 on YoY comparison.
There is a steady drop in occupancy levels. In Q4, occupancy levels have dropped to 65 percent, the lowest in the company's recent history."There is deterioration of finances and operating margins, things could get much worse in the first quarter," the above bidder said.