Rakesh Jhunjhunwala, the Badshah of Dalal Street, has a special affinity for Pharma and healthcare stocks. This is not surprising considering that Atul Suri, his right hand man on the technical side, has declared that Pharma stocks make the ideal investment due to their low volatility and secular growth.
Lupin is one of Rakesh Jhunjhunwala’s crown jewel stocks in the portfolio. He holds a treasure trove of 71,55,410 shares worth a mind-boggling Rs. 1137 crore. The Badshah has held the stock for decades and will continue to do so as he disclosed in a recent interview.
Aurobindo Pharma is another of Rakesh Jhunjhunwala’s favourite stocks. In a historical moment, when Aurobindo was still grappling with the FDA and FCCB problems, the Badshah stunned everyone by grilling Aurobindo’s management during an earnings conference call. Today, Rakesh Jhunjhunwala has a 5-Bagger in Aurobindo Pharma.
Rakesh Jhunjhunwala’s latest stock pick is Fortis Healthcare, a mid-cap with a market capitalisation of about Rs. 6,400 crore. Today, he bought 34,85,075 shares at Rs. 119 each, by shelling out about Rs. 41 crore.
Fortis Healthcare has had a chequered history. It is promoted by Malvinder Mohan Singh and Shivinder Singh, erstwhile promoters of Ranbaxy. It runs a chain of super specialty hospitals with 10,600+ beds in Delhi and several other cities of the Country.
In 2012, Fortis’ bought a 100% stake in Fortis Healthcare International Pte. Ltd, Singapore, in an all-cash deal of Rs. 3259 crore. This strained its balance sheet and led to a ballooning of debt. It made other overseas acquisition like the Singapore-based diagnostics business RadLink-Asia Pte Ltd, Dental Corporation, Australia, Quality Healthcare, Hong Kong and Fortis Hoan My, Vietnam. Unfortunately, the acquisitions did not go well and Fortis reported huge losses.
| Fortis Healthcare Quarterly Results | |||
|---|---|---|---|
| Particulars (Rs cr) | Sep 2014 | Sep 2013 | %Chg |
| Net Sales | 1031.2 | 1282.46 | -19.59 |
| Other Income | 20.29 | 66.35 | -69.42 |
| Total Income | 1051.49 | 1348.81 | -22.04 |
| Total Expenses | 1019.15 | 1191.9 | -14.49 |
| Operating Profit | 32.34 | 156.91 | -79.39 |
| Net Profit | -69.11 | 26.85 | -357.39 |
| Equity Capital | 462.79 | 462.78 | – |
In FY 2013-14, Fortis undertook a major restructuring of its operations. It divested several international assets and reduced its debt:equity ratio to 0.2 from 1.7. The results of the restructuring will hopefully be visible in the future quarters.
An indication that the future is bright for Fortis Healthcare is discernable in Shivinder Mohan Singh’s latest interview in ET. He points out that the Company is now focussed on the core strengths from a geography and portfolio perspective. He expressed confidence that the Company would grow in all three specialities apart from generic multi-specialty large facilities.
There is also an “Investors’ Presentation” prepared by Nomura which provides valuable information on the scope for the healthcare industry in India and how Fortis intends to leverage that.
If you pause to think about it, Rakesh Jhunjhunwala’s strategy becomes clear. Fortis is not a favourite at present amongst investors and analysts owing to its poor track record. However, the management is clearly taking steps to redress the situation as is brought out by the recent divestments and also Shivinder Mohan Singh’s statements.
Fortis will undergo a re-rating if things go as per plan must be the Badshah’s thinking.
As to why the Badshah invested such a piffling amount in Fortis, my guess is that the investment is a “tracking position”. The Badshah has not yet developed full confidence in Fortis. He will monitor its performance over the next few quarters and then decide whether to reward it with more allocation of capital or not.
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