Analysts positive on IHH Healthcare's move to slash stake in India's Apollo Hospitals

PETALING JAYA: Analysts are positive on IHH Healthcare Bhd’s disposal of over half of its stake in the India’s largest hospital operator Apollo Hospitals Enterprise Ltd, as the group will be able to use the proceeds to expand its operations in the country.
Last Friday, IHH, which is majority owned by the sovereign wealth fund Khazanah Nasional Bhd, announced that its unit Integrated (Mauritius) Healthcare Holdings Ltd has disposed 6.07%-stake in Apollo for RM710.9 million (INR10.7 billion), via a bookbuilding exercise mostly to institutional shareholders.
The disposal would reduce IHH’s holding in Apollo to 4.78%, from 10.85% previously. Upon completion of the disposal, IHH is expected to record a gain on disposal of RM312.1 million.
In a report yesterday, PublicInvest Research said it views the disposal positively, seeing it as an opportunity considering the right pricing and value, which it believes would be channeled to IHH’s working capital needs.
“We understand that it’s also a part of IHH’s effort in shaping and solidifying its India segment, which currently consists of the remaining 4.78% stake in Apollo, Apollo Gleneagles 50:50 joint venture (JV), Global Hospitals chain and a standalone Continental Hospitals,” it added.
Recall that IHH’s stake in Apollo was inherited upon the injection of the venture by its major shareholder. Apart from the investment in Apollo, IHH has a 50:50 JV with Apollo to operate Apollo Gleneagles Hospital in Kolkata and Apollo Gleneagles PET-CT in Hyderabad.
The research house said the disposal is not a surprise, as it does expect some adjustments in IHH’s India portfolio after its acquisition of Global Hospitals and Continental Hospitals in 2015.
Meanwhile, AmInvestment Bank said by disposing its stake in Apollo, IHH would be able to redeploy the proceeds to expand operations of its two hospital business for a bigger play in India’s burgeoning private healthcare demand driven by an overburdened public healthcare system.
“It is uncertain at this juncture if the stake sale is the first of more to come for its remaining stake in Apollo,” it added.
AmInvestment said it is keeping its “hold” call on IHH, as it maintains its sum-of-parts (SOP)-based target price of RM6.70 after accounting for IHH’s disposal of 6.07% equity interest in Apollo.