Religare Health Trust

Religare Health Trust (RHT): Daiwa today released an unrated report on RHT, after meeting management recently for a business update. RHT has a current portfolio of 18 healthcare assets (12 clinical establishments under Fortis Healthcare brand, 2 operating hospitals and 4 greenfield assets) located in cities across India.

RHT derives a service fee (fixed + variable components) from its clinical establishments. Currently the fixed fee component makes up around 70% of overall service fee revenue. RHT’s FY15 service fee increased 27% YoY, largely due to an acquisition (the Mohali clinical establishment). Excluding this acquisition, FY15 variable fees grew by 12% YoY. Looking ahead, management expects organic growth in service fee to come from its capacity enhancement initiatives, where it seek to add 492 hospital beds (19% increase in its current operational bed count) over FY16.

RHT’s gearing is relatively low at 13.6% and this gives ample headroom for acquisitions to drive DPU growth – an increase in gearing to 60% will provide additional $1.04bn in potential funding.
Currency fluctuations are a key risk for RHT, as asset valuations and revenue are derived in INR, while distributions are paid out in SGD. RHT hedges its distributable income on a 1 yr forward basis and 100% of its debt is currently denominated in SGD.

RHT is trading at FY16 DPU yields of 7.8% and also trades at 4% premium to BV of $0.968.