Religare Health Trust – Phillip

Exposure to India's Healthcare Sector

Company Overview

Religare Health Trust, a business trust, comprising healthcare assets in India. Its mandate is to invest in medical and healthcare assets and services in Asia, Australasia and global emerging markets, including medical and healthcare asset developments.

• RHT's initial portfolio consists of 11 clinical establishments, four greenfield clinical establishments and two operating hospitals valued at S$748mn
• At the IPO price of S$0.90, RHT is trading at one time to its book value and appears inexpensive
• The institutional tranche was 2.5 times oversubscribed

What is the news?

RHT is scheduled to list on the third week of Oct-12. Approximately S$510.8mn will be raised from the public offering. 95% of the proceeds will be uitilised to partially fund the initial portfolio. Its initial portfolio consists of 11 clinical establishments (S$714mn), four greenfield clinical establishments (S$29mn) and two hospitals managed and operated by RHT (S$5mn), which are all geographically diversified across India.

How do we view this?

RHT provides unique value proposition for investors to have exposure to the growing demand of quality healthcare services in India and Asia Pacific. We like RHT's service fee revenues term structure that offers both downside protection (15 years term with annual escalation of 3%) and upside potential (7.5% of Fortis companies' operating revenue). In addition, rising affluence in upper middle class segment and underserved Indian healthcare market would benefit RHT. Foreign exchange risk is the main concern for RHT but forward contracts are put in place to hedge the currency translation up to FY2014.

Investment Actions?

On the valuation, RHT is priced at one time to book. The price of RHT appears inexpensive on the P/B basis relative to the rich P/B valuation of Ascendas India Trust (a-iTrust) at 1.27 times which is way above its historical P/B mean of 0.83. Annualised FY13 dividend yield of 9.0% including the distribution wavier (up to FY2014), looks appealing given the current slow growth and yield-starved period. By stripping out the distribution wavier, the yield is around 6.5% which is lower than a-iTrust yield of 7.1%. The institutional tranche was 2.5 times oversubscribed according to the news flow compared to Courts Asia which was 3.4 times subscribed.