Religare – CIMB

Ramping up at Gurgaon

Key positives include healthy occupancy and average revenue per bed, faster ramp-up at Gurgaon Hospital and capacity expansion plans. We expect growth from base fee step-ups, variable fee upside alongside higher underlying assets’ ARPOB and occupancy and acquisitions.

4QFY13 DPU broadly met street and our expectations, forming 24% of our FY13 forecast. We finetune DPUs incorporating 4Q, introduce FY16 numbers and raise our DDM-based target price on a lower discount rate of 11.7% (prev. 12.1%), in line with falling Indian bond yields. Maintain Outperform with catalysts from earnings delivery and acquisitions.

Faster ramp-up at Gurgaon

We expect stability to be anchored by fixed base fees, which make up ~70% of revenues, ex. straight-lining and upside from revenue-sharing via variable fees. RHT’s 4Q DPU came in marginally below forecast on higher opex from a quicker ramp-up at Gurgaon Hospital. This should however be mitigated by adjustment in base fees from FY14. Since its inauguration in May 13, Gurgaon’s operational beds have hit management’s targeted 450 for phase 1. Portfolio operating metrics remain healthy at 73% occupancy (after incorporating bed additions) vs. 3Q’s 75% while average revenue per operating bed (ARPOB) turned a stronger Rs. 0.9 Cr. vs Rs. 0.85 Cr. last quarter. RHT also announced that CEO and chairman Ravi Mehrotra will relinquish his CEO post to separate the roles of chairman and CEO. He will be succeeded by current COO, Gurpreet Dhillon.

Keeping an eye on growth

Management has announced four capacity expansion projects (totalling Rs. 246m or S$6m) to add c. 200 beds over 2013. Backed by its low asset leverage of ~7%, it is evaluating acquisitions for growth and is going through due diligence for some.

Maintain Outperform

Our Outperform call is supported by attractive headline yields and the catalysts of earnings delivery, execution and acquisitions. Yields of 8.3% remain among the highest within REITs/business trusts under coverage and could benefit
from the sustained search for yields.