Fortis Healthcare to acquire 31% stake in Agilus for Rs 1,780 crore

Deal values diagnostic arm at Rs 5,700 crore

Fortis Healthcare is set to acquire a 31 per cent stake held by PE players in its diagnostic arm Agilus Diagnostics for Rs 1,780 crore that values Agilus at Rs 5,700 crore. The PEs are selling their stake by exercising a put option.

Fortis has already received a letter from NYLIM Jacob Ballas India Fund III LLC (NJBIF) in this regard for 15.86 per cent stake valued at Rs 905 crore. The letters from the remaining PE investors — International Finance Corporation (IFC), and Resurgence PE Investments Limited, formerly known as Avigo PE Investments Limited — are expected to come by August 13.

 

At Rs 5,700 crore, the deal values Agilus at 20-times of FY26 expected EV/Ebitda. Nuvama analysts noted that the acquisition would be funded by debt of Rs 1,500 crore at 10-10.5 per cent rate. This could put pressure on margins, they said.

Agilus has posted net revenues of Rs 309.6 crore in Q1FY25 with an Ebitda of Rs 55.5 crore, and a margin of 18 per cent.

 

India’s largest diagnostic player Dr Lal Pathlabs has a market cap of Rs 26,669.89 crore as of August 8, 2024. It posted revenues of Rs 534 crore in Q1FY25. Another major diagnostic player Metropolis Healthcare has a market cap of Rs 10,575.16 crore as on August 8. Metropolis had posted revenues of Rs 292.27 crore in Q4FY24 and Rs 1,103.43 crore in FY24.

In a stock exchange notification, Fortis said that the three PE investors have certain exit rights in respect to their shareholding in Agilus, including exit through exercise of put option by August 13, 2024 at fair market value in accordance with the processes and terms set out in the shareholders’ agreement dated June 12, 2012.

Fortis Healthcare informed the exchanges that they have received a letter on August 7 in respect of the exercise of put option right by NJBIF for 12.43-mn equity shares equivalent to 15.86 per cent equity stake by them in Agilus for Rs 905 crore. “The company is in the process of assessing and taking all necessary steps as required to comply with its contractual obligations under the shareholders’ agreement, subject to applicable law,” it said.

Earlier, Malaysia’s IHH Healthcare, which holds a controlling stake in Fortis Healthcare, had tried to facilitate the PE investor stake sale, and had mandated bankers to find a buyer.

The company had also filed a Draft Red Herring Prospectus (DRHP) with Sebi for an initial public offering (IPO) in September 2023; however, it eventually shelved the IPO plans this February. According to the DRHP filed by the company, the IPO was to comprise an offer for sale (OFS) of 14.2-mn equity shares by Agilus’ investors, namely IFC, NJBIF, and Resurgence PE Investments.

Nuvama analysts said the “management’s assurance to continue its hospital expansion is comforting while Agilus’ potential recovery could generate value-unlocking opportunities in future”. The brokerage added that re-branding and regulatory issues have crippled Agilus’ growth. “We expect it to reach industry-level growth by FY26. We are building FY24-27 estimated revenue and Ebitda CAGR of 8 per cent and 17 per cent, respectively,” they said in a note.

Agilus Diagnostics was earlier known as SRL. Analysts also said that the business is still adjusting to rebranding exercises. Rebranding expenses were Rs 9 crore in Q1FY25. Around Rs 50 crore rebranding costs are planned for FY25.

Agilus has 4,055 customer touchpoints as on June 30, 2024.