Following a prolonged dispute linked to Fortis’ former founders and promoters — brothers Malvinder Singh and Shivinder Singh — as well as litigation involving Japan-based Daiichi Sankyo Co arising from its acquisition of Ranbaxy Laboratories, India’s Securities and Exchange Board (SEBI) on Oct 1 gave the green light for IHH to proceed with its mandatory open offer.
The offer, which closed on Nov 4, saw IHH’s stake in Fortis rise to 31.17% and its effective ownership of its subsidiary Malar Hospitals grow to 62.73%. This development in India has had an impact on IHH’s share price in Malaysia.
The resolution to the seven-year lawsuit related to Fortis has been good news for investors. IHH’s share price crossed the RM8 ($2.53) level in early October and has risen more than 12% since.
The stock reached a record high of RM8.72 on Dec 16 and has been trading at about the RM8 level for the rest of December. This compares with the range of RM6 to RM7 a year earlier, when speculation about IHH’s privatisation emerged and the group acquired Island Hospital in Penang for about RM3.92 billion cash.
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With control issues at Fortis largely resolved, the optimism over IHH is on the account that the group can now turn its focus to operational execution in one of Asia’s fastest-growing healthcare markets.
“Our strategy remains to progressively increase our stake in Fortis, leveraging it as a platform for expansion in India. India continues to be our key growth market where we are scaling strategically to establish world-class hospitals and elevate care delivery for patients nationwide,” says IHH group CEO Dr Prem Kumar Nair in an email to The Edge.
India is currently IHH’s fourth-largest earnings contributor after Turkey/Europe, Singapore and Malaysia. Yet, it stands out for its growth potential.
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While Turkey and Europe are grappling with geopolitical and currency volatility, and Singapore and Malaysia face tighter regulations and rising cost pressures, India offers scale and structural growth.
Industry estimates suggest India’s healthcare market could expand to between US$500 billion ($644.13 billion) and US$600 billion by 2030, from an estimated US$370 billion to US$400 billion in 2024, translating into a CAGR of 15% to 18%.
Executives familiar with India’s healthcare sector say hospital chains there have rich valuations — with their EV/Ebitda averaging at 35 times and price-earnings ratio averaging at 68 times — reflecting the premium investors place on long-term growth prospects.
“India’s private healthcare sector holds significant growth potential, driven by demographic shifts, rising incomes, supportive government policies, technological advances and increasing health awareness,” says an executive familiar with India’s healthcare sector. “Investors recognise this growth potential, which is why Indian hospital stocks trade at such high premiums.”
While India’s healthcare market is lucrative, the competition is intense. The leader is Apollo Hospitals Enterprise while the likes of Fortis, Narayana Hrudayalaya and Max Healthcare Institute lag behind. Fortis is the fourth-largest private hospital operator in that country.
IHH’s India strategy
As part of its integration strategy, IHH says Fortis is now managing most of its Gleneagles hospitals in India, allowing the group to consolidate its operations in that country. The group plans to add 2,000 beds by 2028, lifting its total capacity in India to about 7,000 beds across 35 hospitals.
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However, even after increasing the number of beds, Fortis still trails market leaders like Apollo Hospitals, which operates 73 hospitals and over 10,100 beds nationwide. Narayana Health has 5,955 beds in about 21 facilities, while Max Healthcare runs about 22 hospitals, with more than 5,100 beds.
Prem says IHH is on a strong growth trajectory in India, delivering double-digit growth in both revenue and Ebitda. He notes that Ebitda from the group’s operations in India more than doubled to RM723 million in the FY2024 ended Dec 31, 2024, from RM360 million in FY2019, driven by higher patient volumes and increased case complexity.
However, he did not disclose the capital expenditure allocated to the group’s Indian operations.
“Fortis is already a significant contributor to IHH’s earnings and we expect its contribution to grow. Its FY2025 3Q results reflect robust earnings and healthy margin improvements across its hospital and diagnostics businesses,” he says.
“We expect its margins to strengthen further, reaching the average market level of 25% for comparable assets, following the completion of the Fortis open offer, which delivers significant structural and financial benefits. In addition, the maintenance and services agreement between Fortis and Gleneagles India [for which Fortis manages most of the Gleneagles hospitals] harmonises key processes and clinical governance, enhancing operational efficiency and expanding geographical reach.”
Early overtures
IHH’s interest in Fortis dates back to 2018, when it acquired a 31.1% stake as part of its push into India. The entry followed the exit of founders Malvinder Singh and Shivinder Singh amid mounting debt issues and allegations of fund siphoning.
IHH outbid several suitors, including Manipal Hospital Enterprises backed by TPG Capital, Hero Enterprises with the Burman family of Dabur, China-based Fosun Health Holdings and Radiant Lifecare backed by KKR.
The first time Khazanah Nasional Bhd looked at India’s healthcare market was in 2015/16, recalls Ahmad Shahizam Mohd Shariff, who is currently a director at the Malaysia Healthcare Travel Council (MHTC).
“The first time Khazanah looked at India’s healthcare market, valuations were expensive. Then an opportunity came in Fortis when the shareholders had problems,” he says.
“However, there were risks involved. The Daiichi lawsuit was still hanging and there were too many unknowns.”
Ahmad Shahizam was the lead person at Khazanah looking after its interest in IHH.
“Only later, when there was more legal clarity, IHH felt comfortable [with] taking control. Until control was clear, you couldn’t really do much. Everything was tied up in legal proceedings,” he says.
India was already being assessed as a long-term growth market at the time, with Fortis standing out as one of the few private operators with a pan-India footprint, says Ahmad Shahizam.
He was part of the healthcare strategy and investment oversight team at IHH’s parent, Khazanah. This was when the sovereign wealth fund began building a regional private healthcare platform through the consolidation of Pantai Group and Singapore-based Parkway Holdings in 2010, which later became IHH.
Ahmad Shahizam joined IHH as chief corporate officer in 2017, before leaving the group at the end of that year. He was president and managing director of KPJ Healthcare Bhd from 2020 to 2022.
A difficult market
India has long been regarded as a difficult market for foreign investors, including Malaysian corporates. Apart from navigating the tough competitive landscape, investors also have to deal with the changing political alliances.
Among those who bore the brunt of the change in the political landscape was the late T Ananda Krishnan. He was embroiled in the Aircel-Maxis case that saw him exit the India operations with heavy losses.
Other companies such as government-linked TH Heavy Engineering Bhd and Mudajaya Group Bhd have had their fair share of travails in India. Mudajaya was in the power sector while TH Heavy Engineering had issues with a local oil and gas company.
The only company with some level of success in India is IJM Corp Bhd, which built highways and then cashed out. But the success stories of investing in India are few and far between.
Against this backdrop, the question is whether IHH can navigate the complexities in India more successfully through Fortis.
“Not easy. The Indian market is very tough,” says Ahmad Shahizam.
However, there is a different view on IHH’s venture in India. A former healthcare executive familiar with the healthcare group says its image as a Singapore company helps its presence overseas, especially in India.
“Although IHH is a Malaysian company, it is often viewed overseas as Singapore-based because the management is located there. Somehow, Singapore companies tend to be treated better in markets such as India,” says the executive.
“Moreover, regulatory and political risk exists everywhere. Not only in India.”
IHH had encountered hurdles in India even before its investment in Fortis.
In its early years, IHH had a stake of more than 15% in Apollo Hospitals. This was around 2011. But IHH sold its shareholding in the subsequent years because it could not make any headway with its minority interest in the group.
In 2015, IHH acquired a 51% stake in Hyderabad-based Continental Hospitals for about RM166.7 million. Less than two years later, disagreements over a proposed rights issue led the founders to petition India’s National Company Law Tribunal.
The group’s earlier plans in Mumbai also faltered. Construction of the Gleneagles Khubchandani in Mumbai — an equal partnership between Koncentric Investments and IHH’s Parkway Group Healthcare — stalled following a dispute with its joint-venture partner, resulting in IHH recording an impairment loss of RM97.3 million.
Whether India becomes a meaningful earnings driver for the group will depend on Fortis’ ability to regain momentum and scale up its operations there.
