Religare Health Trust operations remained strong

3Q14 results within expectations. 3Q14 DPU was 2.14 Scts, which was in line with our expectations. Revenue improved by 1.3% q-o-q, but was 1.8% below its IPO projections due to a weaker INR. In INR terms, however, revenue was 11% higher than projected. Operating margins improved marginally to 59% in 3Q14 from 58.1% in 2Q14, arising from tighter cost control.

Operations remained strong. The average occupancy at its Clinical Establishments remained high at 78%, up from 3Q13’s 73%, but down from 2Q14’s 86%, as 2Q is a seasonally high quarter due to the summer months. Average Revenue per Operating Bed (ARPOB), however, saw an increase of 5.1% from 2Q14 mainly from price increases in Mulund CE and higher intensities at Kalyan CE.

Our View
1H15 distributions hedged at SGD/INR53.36. In Dec’13, RHT entered into forward contracts to hedge distributions for the 6- month period ending
30 Sep’14, at SGD/INR53.36. This is a step down from the SGD/INR47.79 rate for the preceding 6-month period ending 31 Mar’14. As a result a weaker INR, we project DPU to dip to 7.2 Scts in FY15F from 8.1 Scts in FY14F. We estimate that every 1% change in SGD/INR rate will impact DPU by 1% correspondingly.

Delivering on growth through acquisitions, expansions and Greenfield projects. RHT recently entered into a sale deed to acquire Mohali Clinical Establishment (CE) for S$58.2m (INR2,850m). This facility is an accredited hospital in North India and will help to enhance RHT’s distribution yield. To aid growth from FY16 onwards, RHT held a groundbreaking ceremony to develop a women’s hospital in Ludhiana and is looking to expand BG Road CE by another 200 beds.

Recommendation
Maintain HOLD, TP revised to S$0.82. We have factored in the recently announced proposed acquisition of the Mohali Clinical Establishment for INR2,850m. Our TP is adjusted up marginally to S$0.82, based on DDM (CoE: 12.2%, t=3%), to account for the acquisition. Maintain HOLD. A key upside risk to our recommendation is a significant strengthening of INR against SGD.