Religare – CIMB

Maiden DPU delivery

RHT’s maiden DPU came in slightly above management’s forecast, thanks to higher operating hospital income and lower operating expenses. Yields remain compelling at 9%, offering total return of 18%, with downside mitigated by fixed base fees and FX hedges till Mar 14.

3QFY3/13 DPU (19 Oct-31 Dec) was broadly in line with consensus and our estimates, at 21% of our FY13 forecast. We tweak DPUs and DDM target price higher for a lower discount rate of 12.1% (prev. 12.4%) in-line with lower Indian bond yields. Maintain Outperform, with earnings delivery, execution and acquisitions being the catalysts.

Higher hospital income; lower expenses

RHTs 3QFY13 (19 Oct-31 Dec) DPU of 1.66 Scts was slightly above management’s DPU forecast of 1.63 Scts. The operational performance of its clinical establishments in 3Q was disrupted by the festive season in Oct and Nov, which affected variable fees pegged at 7.5% of revenue. But this was made up by lower operating expenses and higher hospital income from its two operating hospitals. Net of straight-lining, actual net operating income was 1% above forecast.

More upside in coming quarters

No operational stats were provided for 3Q though we note that its parent, Fortis saw 20% yoy growth in Indian hospital revenue (across assets within and outside RHT) on occupancy and ARPOB gains. The addition of beds at Gurgaon (soft-launched in Nov 12), Ludhiana and Chennai should contribute in the coming quarters.

Management, meanwhile, remains on the lookout for acquisitions, supported by debt headroom offered by its low gearing of 6.7%. With its parent in deleveraging mode, we believe that future acquisitions could increasingly be undertaken by RHT.

Maintain Outperform

Stability remains anchored by fixed base fees (>70% of fee revenues) while upside comes from revenue sharing through variable fees. Our Outperform call is supported by the 9% headline yields and the catalysts of earnings delivery, execution and acquisitions.