Buy Fortis Healthcare on diagnostic biz demerger, says Nomura

Moneycontrol BureauBrokerage Nomura has buy call on Fortis Healthcare and gives a target price (TP) of Rs 238 per share on account of its demerger plans. Fortis Healthcare will transfer its diagnostic business, including SRL Limited, to Fortis Malar Hospitals Limited. Before this, Fortis Malar's Hospital business will be sold to Fortis Healthcare by way of a slump sale for a cash consideration of Rs 430 million.Post the demerger, listed entity Fortis Malar will be renamed SRL, which will include Fortis Healthcare’s Diagnostic business and Fortis Malar.The firm believes that the separation of the hospitals and diagnostics business into separate entities is going to be positive. The deal will bring in a great deal of focus and clarity in the running of the individual businesses. Not just this, it will also unlock value for current shareholders.Fortis Healthcare has a 56.4 percent stake in SRL Limited currently. After completion of the transaction, current Fortis Malar shareholders will own 2 percent of the new entity. The new entity will have net cash of Rs 683 million, assuming SRL Limited has no net debt. "Our analysis of other listed diagnostics companies suggests the new entity (SRL) will trade at an EV of INR59-65mn, implying 16-28 percent upside from the assigned value," it stays in its report.The appointed date for the slump sale, de-merger and merger is 1 Jan 2017. Fortis management expects the transaction to be closed in the next nine to twelve months, subject to regulatory and statutory approvals.