Fortis Healthcare has announced plans to acquire a 31% stake in Agilus Diagnostics, its diagnostic subsidiary, for INR 1,780 crore, positioning the company for further consolidation in the diagnostics sector. This acquisition values Agilus Diagnostics at approximately INR 5,700 crore and is part of Fortis’s strategic efforts to strengthen its foothold in the competitive Indian diagnostics market.

The stake, being sold by private equity (PE) investors through a put option, includes shares from key investors such as NYLIM Jacob Ballas India Fund III LLC (NJBIF), International Finance Corporation (IFC), and Resurgence PE Investments Limited. NJBIF, holding a 15.86% stake in Agilus, has already formally communicated its intent to sell, valuing its share at INR 905 crore. The remaining investors are expected to exercise their put options by August 13, 2024.

Analysts from Nuvama have highlighted that the acquisition will be primarily financed through debt, amounting to INR 1,500 crore, with an interest rate ranging between 10% and 10.5%. This could potentially impact Fortis’s margins, though the long-term benefits of the acquisition are seen as significant.

Agilus Diagnostics has reported robust financial performance, with net revenues of INR 309.6 crore in Q1 FY25 and an EBITDA of INR 55.5 crore, resulting in an 18% margin. Despite these strong figures, the company faces stiff competition within the Indian diagnostics industry. For comparison, Dr Lal PathLabs, India’s largest diagnostic player, holds a market capitalization of INR 26,669.89 crore, with revenues of INR 534 crore in Q1 FY25. Metropolis Healthcare, another key competitor, has a market capitalization of INR 10,575.16 crore, with Q4 FY24 revenues of INR 292.27 crore and total FY24 revenues of INR 1,103.43 crore.

Fortis Healthcare, in a formal notification to the stock exchange, confirmed the receipt of NJBIF’s letter on August 7, 2024, regarding the exercise of the put option for its 15.86% stake in Agilus Diagnostics. Fortis is currently evaluating its options and plans to comply with its contractual obligations under the shareholders’ agreement, subject to applicable laws.

This acquisition follows earlier efforts by Malaysia’s IHH Healthcare, the controlling stakeholder in Fortis, to facilitate the PE investors’ exit from Agilus. Initially, IHH Healthcare sought external buyers for the stake but ultimately decided that Fortis would acquire the stake directly.

Agilus Diagnostics, previously known as SRL, had also made headlines last year by filing a Draft Red Herring Prospectus (DRHP) with SEBI in preparation for an initial public offering (IPO). However, the IPO plans were put on hold in February 2024.

Nuvama analysts have expressed confidence in Fortis’s ongoing commitment to hospital expansion, viewing this acquisition as a potential value-unlocking move for Agilus. They anticipate that Agilus, despite facing challenges from a costly rebranding initiative (projected to total INR 50 crore in FY25), will recover and achieve industry-level growth by FY26. The brokerage forecasts an 8% compound annual growth rate (CAGR) in revenue and a 17% CAGR in EBITDA for Agilus from FY24 to FY27.

This strategic acquisition underscores Fortis Healthcare’s continued efforts to solidify its leadership in the diagnostics space, positioning itself for sustainable growth in a rapidly evolving market.

Like

Dislike

Be a part of Elets Collaborative Initiatives. Join Us for Upcoming Events and explore business opportunities. Like us on Facebook , connect with us on LinkedIn and follow us on Twitter , Instagram.