Buy Fortis Healthcare Ltd For Target Rs.1,120 by Prabhudas Liladhar Capital Ltd
Another strong quarter
Fortis Healthcare (FORH) reported another strong quarter with EBITDA of Rs5.3bn in Q4FY26, up 22% YoY. Though hospital margin has improved by 530bps over FY23-FY26 to 22.2%, we see further scope for improvement aided by 1) improving case and payor mix, 2) cost rationalization initiatives and ramp-up of Manesar and Greater Noida unit, and 3) new brownfield bed additions. Additionally, we expect margin to expand further, driven by the recent acquisition of People Tree Hospital, Shrimann Hospital and the O&M agreement with Gleneagles. Our FY27E and FY28E EBITDA broadly remain unchanged. We expect FORH to clock 21% EBITDA CAGR over FY26-28E. At CMP, the stock is trading at 25.5x EV/EBITDA on FY28E, adjusted for Agilus stake. Maintain ‘BUY’ rating with revised TP of Rs 1,120/ share; valuing at 30x EV/EBIDTA for hospital segment on FY28E.
Strong EBIDTA growth across segments:
FORH’s consolidated EBITDA increased 22% YoY (5% QoQ) to Rs5.32bn, vs our estimate of INR5.2bn. Hospital business EBITDA came in at Rs4.5bn, up 20% YoY (PLe: Rs4.3bn). Overall hospital OPM improved by 10bps YoY to 22%. Diagnostic business EBITDA increased 35% YoY to Rs850mn (Ple: Rs 836mn), with OPM of 24.9%, given no branding related expenses in Q4. Net debt decreased by Rs2bn QoQ to Rs23.3bn.
ARPOB and occupancy remains steady YoY:
FORH consolidated revenue increased by 18% YoY (4% QoQ) to INR23.6bn; in line with our estimates. Hospital business revenue increased 19% YoY to Rs20.2bn; in line with our estimates. Diagnostic business net revenue grew 11% YoY to Rs3.4bn. Hospital occupancy increased QoQ to 68% from 67% in Q3. ARPOB further improved by 2% YoY and remained flat QoQ to Rs70.1k, driven by better case mix.
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