Life Healthcare dumps its Indian hospital group venture

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Private hospital group Life Healthcare has concluded the sale of its stake in Indian hospital group Max Healthcare for R3.7bn, marking the final nail in the coffin for the disappointing venture. According to a Business Day report, analysts said the acquisition had weighed on earnings and drained Life management’s time.

Life Healthcare bought a 26% stake in Max Healthcare for R820m in 2011 and later increased its share in the business to 49.7% as part of efforts by then CEO Michael Flemming to branch out of South Africa, where a weak economy and job losses had led to a slowdown in demand for private health care.

The report said the group had hoped to generate a quarter of its revenue from India over a five-year period. But the Indian business proved slow to get off the ground and consistently dragged on profits, said Sasfin equity analyst Alec Abraham. “They bought hospitals that were ready to open, but somehow it never worked out, and the ramp-up took a lot longer than it would have in SA. The fact that after so many years they had still not turned a profit (in India) left me a little concerned they would not find a buyer at the right price,” he said.

Life Healthcare said it had sold its stake in Max Healthcare to Radiant Life Care for 80 rupees (R16.61) a share. The deal was backed by investment firm Kohlberg Kravis Roberts. The R3.7bn price tag is R900m higher than what Life Healthcare paid when it bought the stake. The funds would be used to pay off debt, the company said.

Life Healthcare CEO Shrey Viranna is quoted in the report as saying the sale of Max Healthcare fitted in with the company’s new growth strategy, which was to expand across the health-care continuum in South Africa and become an international leader in diagnostic technology. Life Healthcare owns the UK-based diagnostic company Alliance Medical.

Old Mutual Investment Group analyst Philip Short said the sale of Max Healthcare would see Life Healthcare reduce its ratio of net debt to core profit, or earnings before interest, taxation and amortisation, from 2.8 to a more comfortable 2.2. The ratio provides a measure of a company’s leverage.

The report said all three of the JSE-listed private hospital groups had sought to diversify out of the South African market but had their fingers burnt, with Mediclinic’s Abu Dhabi business having had to deal with damaging regulatory changes, while Netcare unveiled plans in March 2018 that it would exit the UK due to tough trading conditions and higher rentals.

“Shareholders wouldn’t be happy with further (offshore) acquisitions,” he said. The report says closer to home, the sector continued to face tough trading conditions, he said. The size of the medical scheme market had stagnated, while large funders such as Discovery Health Medical Scheme had tightened their oversight of admissions and were putting pressure on doctors to conduct more procedures as day cases rather than admitting patients to hospital.

The constrained economy also put a damper on elective procedures, putting further pressure on patient volumes, Viranna said.

Business Day report

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