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Fortis Healthcare shares hit 52-week high on Dental Corp stake sale

Fortis Healthcare shares hit their 52-week high on Monday after the company said it will divest 64 per cent stake in Dental Corporation Holdings (DC), Australia. Fortis is selling its stake in DC to British medical services group Bupa for 270 million Australian dollars (around Rs 1,560 crore) to focus on high-end healthcare operations in Asia.

Fortis, which is India's number two hospital chain after Apollo Hospitals and runs healthcare facilities in Singapore, Malaysia, the Gulf and other Asian countries, is likely to utilise the entire proceeds to reduce the group's debt.

Fortis had a net debt of Rs 6,500 crore at the start of this year. That is likely to come down to Rs 2,300 crore once this transaction is completed.

Macquarie has upgraded Fortis to "outperform" from "neutral" and raised its target price to Rs 125, saying divestment is a step in right direction. Investor focus will now shift towards operational performance, the brokerage added.

V K Sharma, head of business (private broking & wealth management) at HDFC Securities said investors have not been comfortable with Fortis because of the way promoters have behaved. However, at this price level, the stock requires a fresh look.

Some analysts were skeptical about the move as the Australian business, which had A$339 million in sales in the 12 months to June, was one of the key revenue generators for Fortis.

"Although prima facie the deal looks good, it will have a negative impact on a long-term basis," said Siddhant Khandekar, analyst at ICICI Direct.

The Dental Corp business has operating margins of 15 to 18 percent, which is higher than Fortis' overall operating margin, Khandekar said.

Fortis bought the Dental Corp stake in January 2011, hoping to expand the business across other regions but has been unable to do so.

It raised the number of dental practices in Australia and New Zealand to 190 from 140 in the nearly two years it owned the business, the company said in a statement late on Sunday.

At noon, Fortis shares traded 7 per cent higher at Rs 116.80 on the BSE while the broader Sensex was down 0.2 per cent to 19,276.



(With inputs from Reuters)