Auditor raises red flags in Fortis Healthcare's quarterly earnings report

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Leading hospital chain operator Fortis Healthcare on Thursday released its quarterly earnings for the second quarter and third quarter. The auditor has raised several red flags on some of the recent developments and is also uncertain if and when inter-corporate deposits would be recoverable.

Fortis' stock exchange filings state that its audit and risk management committee has decided to carry out an independent investigation through an external legal firm in relation to three matters – inter-corporate deposits given by a wholly-owned subsidiary of the company, intra-group and related party transactions and evaluation of the implications of a recent legal notice received by the company.

“We were not able to obtain sufficient appropriate evidence relating to the matters refered therein, as a basis for expressing a conclusion on the statement,” Deloitte Haskins and Sells said in its independent auditors review report.

Fortis Healthcare has been in the spotlight after a media report alleged last month that the company's promoters Malvinder Singh and Shivinder Singh took about Rs 473 crore out of the listed hospital chain operator without board approval.

The company has said that its subsidiary Fortis Hospitals had deployed the funds in secured short-term investments in the normal course of treasury operations with three companies, which were not related to the group until December 14, 2017. Effective December 15, 2017, these companies became part of the promoter group and consequently these transactions were recognised as related-party transactions. It says repayment of the balances has commenced and Fortis Hospitals has received Rs 70 crore from one company towards part payment of its dues, it added.

However, Deloitte says it is unable to conclude the compliance with Fortis Hospital's internal control policy for authorising the grant of the inter-corporate deposits and execution of the ICD agreements, availability and adequacy of the security for the ICDs and its recoveribility and the possible effects of the matter on the cash flows and operations of the company.

Market regulator Securities and Exchange Board of India has also launched an investigation in the matter and sought information and documents with regards to the short-term investments made. Registrar of Companies is also seeking information on the issue.

Fortis on Thursday said it has furnished some of the information and documents sought by SEBI and effects if any, would be dealt with when the investigations are complete.

Separately, Deloitte has also red flagged an unsecured advance of Rs 57.76 crore due from certain vendors where recovery had been delayed.

“In the absence of any security and delays in the recovery, we are unable to conclude on the recoverability of the said advances,” said Deloitte.

For the quarter-ended December 31, Fortis Healthcare reported a consolidated net loss of Rs 19.10 crore, versus a profit of Rs 453 crore a year ago. Its total income for the quarter stood at Rs 1,163.27 crore, up from Rs 1,192.31 crore in the year ago quarter.

Credit ratings agency, ICRA, had recently downgraded its ratings on Fortis Healthcare's non-convertible debentures to A- from A+ and on its short-term debt to A2+ from A1+.

“The rating action takes into account the disclosure about the advances extended by Fortis Healthcare to related parties, which in ICRA's views has a significant impact on Fortis Healthcare's credit and liquidity profile,” the ratings agency said.

ICRA further added that while repayment by the entities has already commenced, considerable amount is still outstanding, and the timing and quantum of recovery of the same cannot be ascertained.

Fortis Healthcare shares ended at Rs 160.80 on the BSE on Thursday, up 0.6 per cent.