Fortis considering Vertical De-merger of SRL limited

A de merger by revenues is an option being considered for SRL Ltd by its parent company Fortis Healthcare Ltd, before taking the subsidiary public, read an announcement made by the company on Thursday .The vertical de merger is being considered, in order to get Fortis listed on the Indian stock exchange and also help provide an exit passage to the private equity investors, who together with the parent group own 34 % of the stake. This de-merger would allow them to exit even if the proposed listings face delays in the future.The equity investors seeking exit are International Finance Corporation (IFC), NYLIM, Jacob Ballas and Avigo Capital Partners.

Besides, Private Equity Asia, Bain Capital and Capital International, among others, were in talks to buy the stake from existing investors revealed reports in the Economic Times . "The deal could not materialize due the valuation difference," according to sources. SRL had taken on Moelis and Co, an investment bank, during this time last year to seek advice on the exit deal for present investors.The de merger move will also result in SRL ceasing to be a subsidiary of Fortis Healthcare.

SRL's expectation to do well at the stock exchange received a new high, when the market rival Dr. Lal Path Labs did good with its stock market debut.

"The successfully listing of Dr Lal Path labs Limited, in December 2015, has directly affected the promoters' expectation of SRL Diagnostics," said a source in the company. With Dr Lal Path labs having done its public issue at Rs. 550 per share in December 2015, leading to a valuation of Rs. 4,550 crore, it has been now observed that the company's share has almost doubled at Rs.977 in the last five months. Its market capitalization crossing from Rs. 8000 crores to Rs. 8091 crores.

Fortis Healthcare on the other hand has a market capitalization of Rs. 7,830 crores and a current share price of Rs. 169.

Owned by the Singh brothers Malwinder Mohan and Shivinder Mohan. Fortis Healthcare, were initially looking for a Rs. 6000 crore valuation, while the market was responding back at Rs. 4000 crore, according to market sources. The directive for sale was for a minority stake . Those close to the Fortis group, however, claim that options to the extent of an all out sale had also existed.

Coming back to SRL, on March 31, 2016, SRL had a network of 314 labs and about 7200 collection centres. Performing over 14.5 million accessions during FY16, SRL witnessed a 6% growth over last year. With these accessions it undertook 32.7 million tests, up 8% compared with 30.4 million tests in FY15. Its revenues rose 6% to Rs. 764 crores last financial year; its pathology business contributing 88% to the revenue in the current year. Reflecting a 14% growth every year. The EBITA margin of SRL diagnostics is a few decimal points away from that of its closest competitor Dr. Lal Path labs according to VCC Circle