Asiri gears up to reach full potential

The health sector has gained 29.5% YTD, whilst the market as a whole has grown +100% YTD. However, the Sri Lankan healthcare sector is still in the process of reaping its fullest potential in the periods to come.

Asiri Hospitals, a listed healthcare institution with a market capitalisation of Rs. 8.1 b, has two other quoted entities under it; Asiri Medical Services Limited and Asiri Central Hospitals.

The 117-bedded Asiri Hospitals which is situated in Kirula Road has a complete range of medical in-patient care consisting of medical, maternity, paediatric and critical care wards. It also has a state-of-the art neonatal intensive care unit, three well-equipped operating theatres, a nine-bedded intensive care unit, 250 out-station and overseas sample collecting centres.

Recent moves

ASIR acquired Asha Central in 2007 and renamed it Asiri Central but now all operations of Asha have been switched to The Central Hospital (Pvt) Ltd. The management of Asiri is still in the process of drawing its decision on Asha.

Another most recent Rs. 5.5 b investment (of which Rs. 3 b was funded through equity whilst the remaining was through a syndicated loan from Sampath Bank) on the 14-level 435,000 sq.ft complex with coronary care, specialised surgical units and a fully-fledged theatre complex with a bed strength of 262, proved to have broken even in June 2010 after becoming fully operational in May 2010.

This new operation falls under The Central Hospital (Pvt) Ltd., in which Asiri has an effective holding of around 35.7% and is recognised as a subsidiary due to the controlling power over the entity by Asiri. The performance of this new wing will be reflected in the books of Asiri from 2QFY11 onwards.

The management also disclosed that they are planning to list The Central Hospital on the CSE in the periods to come, after making a successful private placement to finance the Rs. 5.5 b investment where John Keells Holdings took up 25% of the stake.

Asiri Group obtained a US$ 20 m loan from the International Finance Corporation (IFC) to refinance the existing borrowings and to restructure the balance sheet of The Central Hospital, Asiri and AMSL. The loan, for which Asiri had received Central Bank’s approval, is repayable over 10 years with a grace period of two years.

The terms of the loan includes an agreement by Asiri and AMSL to jointly raise money to settle the loan. Of the US$ 20 m, US$ 11.4 m is to be utilised by The Central Hospital to pay off the loan from Sampath Bank, whilst the remaining is to be utilised by AMSL and Asiri.

In early 2010, ASIR purchased another 40-bedded hospital in the southern area of Matara for Rs. 160 m. Furthermore, ASIR’s penetrated into the health scope in Kandy after acquiring 100% of a private hospital there in September and now possesses a 99-year-old lease right to acquire two acres of land in a strategic location in the heart of Kandy with the preliminary approval to construct a hospital.

In addition to the expansion strategy of Asiri, the next spot of starting an out lab test operation is in Jaffna. The management hopes to start operation by mid October 2010 there. Moreover, the next destination plan for Asiri would include densely populated areas such as the Gampaha District, which is also developing whilst also having the eastern region in mind and viewing tourism-health as another potential field.

Past financials

Asiri’s revenue grew by 16.2% YoY in FY10 to Rs. 3,879.4 m whilst the 1QFY11 saw a YoY revenue growth of 28.2% to Rs. 1,141.8 m. The hospital’s net earnings recorded a four-year CAGR of 12.2% whilst reporting a 154.3% YoY growth to conclude FY10.

However, the 1QFY11 witnessed a dip of 38.4% YoY in the bottom line on the back of the increased administrative and finance costs resulting from the new operations falling into play. The share trades at 40.9X FY10 earnings.