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Fortis – Manipal Deal explained

31st March 201831st March 2018 by stocksbaazigar

Fortis Healthcare Ltd (FHL) share price tumbled by 13.29% on the final trading day of Financial year 2017-18. Stock closed on 123.35 on NSE. This fall was due to disappointment of Investors who exited Fortis healthcare after Fortis-Manipal deal terms and structure came out. In the press conference, Bhavdeep Singh, CEO of Fortis gave details about the merger and called it as the deal which can decide the future path of Indian Healthcare sector. His emphasis was on convincing Investors that deal is good for both the parties and combined entity will become the largest Hospital chain of India. But this could not stop the downfall of share prices of Fortis healthcare and Fortis Malar in market, as Investors realized that it was good deal but at poor valuations. There is nothing for Fortis Investors in it. Firstly, there is no open offer to Fortis Healthcare shareholders to tender their shares if they want and secondly SWAP ratio for deal is 100:10.38 which means each share holder of Fortis Healthcare Ltd will get 10.38 shares of Manipal Hospitals against their 100 shares of Fortis Healthcare. Luckily Fortis Malar shareholders got some relief when Manipal Health Enterprises launched an open offer for 26% of Fortis Malar hospital’s shares at a price of Rs. 64.45 per share. Fortis Malar Hospitals share closed on 58.10 on 28th March. Let’s us try to break-down the deal details for further understanding. 1. What is the Fortis-Manipal deal? As per the press release of Fortis Healthcare, Fortis healthcare announced demerger of it’s hospitals into Manipal Hospitals. Board approved sale of its 20% stake in SRL Ltd to Manipal Hospitals, which comes around Rs.720 Cr. The deal infuses Rs. 3900 Cr of fresh capital from Manipal Hospital’s Dr. Ranjan Pai and TPG Capital Asia to complete RHT transactions and to fund growth initiatives. The remaining FHL company will be an investment holding company with 36.6% stake in SRL. In future Manipal Hospitals will increase it’s stake in SRL to 50.9% stake buying stakes from this holding company gradually. 2. What to do in Fortis healthcare now? This deal will reduce FHL into only an Investment holding company. It will take 8 to 12 months to complete the merger. Manipal Hospitals will list on Market after this merger gets completed. Investors of Fortis Healthcare will get shares of Manipal Healthcare Enterprises Ltd. (Manipal Hospitals) as per the swap ratio mentioned above. So clearly Fortis Healthcare Ltd Investors are losers here. Major Investors might give approval to this deal sighting the good future of combined entity and complete closure of unpredictable entity with lots of corporate governance issues. Assets of FHL will go into the hands of good Management. But Minority shareholders will have to book losses in the shares or wait for 1 complete year to see how Manipal Hospitals performs after listing on Market after this reverse- merger deal? 3) How will be the combined entity? Manipal Hospitals is part of ‘Manipal Education and Medical Group’ owned by Dr. Ranjan Pai and backed by TPG, an asset firm who has good experience in Healthcare sector investment. The combination of Manipal Hospitals and Fortis Healthcare will create largest healthcare provider company in India. With more than 11000 installed beds capacity, 4200+ doctors, 9300+ nurses and 11400+ staff, it will serve India and overseas patients in their hospitals in Dubai, Singapore, Mauritius and Sri Lanka. The combined entity will be valued near Rs. 15000 Cr after the deal gets completed. Clearly, Dr. Ranjai Pai and his Manipal Hospitals are clear Winners in this deal. As per my opinion, instead of buying Fortis Healthcare and waiting for 1 long year Investors should buy Manipal Hospitals Ltd. only after its listing. We will see more pain in Fortis Healthcare Ltd share in first week of new Financial year 2018-19. After which funds will definitely accumulate it at lower valuations. Fortis earned higher brand name than Manipal, but Manipal Hospitals is definitely larger player than Fortis when it comes to Market Valuations. Fortis Healthcare Ltd. has seen really bad controversies in last few years – thanks to it’s promoters Singh Brothers who tried to chew more than they should have. From 1996 to 2011, Fortis Healthcare expanded aggressively. But then the Corporate governance issues, legal suits against promoters, stakes selling and exit by them etc. – all made it controversial company to invest. Big Investors like Rakesh Jhunjhunwala, Radhakishan Damani anticipated this deal and invested in Fortis Healthcare at lower valuations. They too are waiting for things to get sorted. Let’s hope that under the leadership of Dr.Pai, this upcoming combined entity will flourish and gives the much needed leadership to Indian healthcare sector where serving India will take priority over looting the patients with unreasonably high bills. (Disclaimer: Please note, this is educational post and Stocksbaazigar is not responsible for any losses/risks you may suffer due to blindly following the post. I have not advised anything or recommended anything in this post)

HEG and Graphite India

31st March 201831st March 2018 by stocksbaazigar

HEG, Goa Carbon and Graphite India – Top 3 Gainers of FY 2017-18 FY 2017-18 has been the year of complete roller-coaster ride for Market Participants. We saw Nifty rising from 9200 level to 11200 and then falling sharply to 9950 again in the same financial year. In this volatile market whoever entered at right time and booked profits at peak, earned good returns. While those who didn’t took their profits home are sitting on huge losses. Some of the stocks have reached the level of year 2013 – mostly public sector companies like Public Sector Banks. Investors will have to wait for two years now to get profitable exit from these stocks. Market will definitely become nervous before Loksabha Elections in India. We might see Nifty levels of 9500 to 9300 before these elections. F & O data suggests that Upside is capped for Nifty at 10500. Therefore, it becomes very important to be highly selective about your bets in this choppy market. Before starting new financial year, I decided to have a good look at the Top Gainers and Top Losers of the Financial Year 2017-2018. The top three Gainers are related to Electric Arc Furnaces wiz Graphite Electrodes exporters HEG and Graphite India and Catalyst Coke Manufacturer Goa Carbon. So let’s discuss about Graphite related 2 stocks in this post. First let us see how they performed in FY 2017-18? Performance of HEG, Goa Carbon and Graphite India in 1 yr. 2. What is the reason of these extra-ordinary returns? Graphite stocks have become Multibagger stocks this year – thanks to transformation happening in Iron & Steel industry. The metal industry is becoming environment-friendly in last few months thanks to global pressure. Traditional Induction Furnaces used in steel and ferro-alloys manufacturing industries are now getting replaced by environment friendly Electric Arc Furnaces. Graphite Electrodes are used in these electric arc furnaces. This has increased demand of Graphite Electrodes in Markets like India and China. China, alone has shut down Induction capacity worth 175 metric tonnes in this year. Secondly, Graphite Manufacturers who weren’t practicing Environment-friendly manufacturing methods/practices were also cracked down by China. This is one more reason why China has become net importer of Graphite electrodes. China has recovered from slowdown of commodity markets of 2015 and started increasing the production of Steel and other Ferro-alloys again. This has increased the exports revenue of Indian Graphite Manufacturers which are using their 75 % of total capacity to reach the demands. 3. Let’s see fundamentals of HEG, Goa Carbon and Graphite India in the financial year 2017-18 to understand the picture better. From the table above, you can clearly see how the Income from Operations of the Electrodes manufacturing has increased in these companies and how it is affecting their quarterly results positively. It is expected that in the coming year company like HEG will utilize it’s 85% of capacity which will also increase it’s Profits further. So clearly, every dip in the Share Price is being utilized by Investors to accumulate these stocks. 4. Can the demand in Graphite sustain? This is the most important question one must ask before investing in these companies. The production of Graphite Electrodes will depend on their demand in Steel and Ferro-alloys industry. The slowdown in commodity market followed by cycle change in the metal sector has brought great consolidation in this market. It is expected that due to shortage of steel scrap and steel, demand for blast furnaces and electric arc furnaces will keep increasing in the FY 2018-19 too. Graphite Electrodes demand in China is around 666kT while potential demand outside china could be around 770 kT. Global Supply of Graphite was merely 789 kT in the FY 2017-18. From this demand-supply imbalance you can clearly say that Graphite companies will perform really well in the new Financial year 2018-19 too. Investors should definitely keep ‘Graphite Electrodes’ related companies on their radar. Fundamentally these companies look really good. [Disclaimer: Kindly note that Goa Carbon’s performance depends on Coke Trends. Hence, I have preferred to analyse only HEG and Graphite India in this post. Please consult your Financial Advisor before taking any investment decisions. Stocksbaazigar is not responsible for any of your losses/risks. This is an educational post and not a recommendation or advise. I have discussed only fundamental aspects here. Investments should be done only after doing both Fundamental and Technical analysis of stocks.]