Buy Fortis Healthcare Ltd For Target Rs.1,120 by Prabhudas Liladhar Capital Ltd
Margin guidance intact
Fortis Healthcare (FORH) reported EBIDTA growth of 16% YoY adjusted for EOSP cost which was in-line with our estimate. 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 ex ESOP broadly remain unchanged. We expect FORH to clock 20% EBITDA CAGR ex ESOP over FY26-28E. At CMP, the stock is trading at 25x EV/EBITDA on FY28E, adjusted for Agilus stake and ESOP. Maintain ‘BUY’ rating with TP of INR 1,120/ share; valuing at 30x EV/EBITDA for hospital segment on FY28E.
Continue to deliver 16% YoY EBITDA growth in Hospitals:
FORH’s consolidated EBITDA adjusted for ESOPs charges; increased 16% YoY to INR 5.7bn, vs our estimate of INR 5.6bn. Consol margins adjusted for ESOPs declined by ~30bps YoY and 20bps QoQ to 22.3%. Hospital business EBITDA adjusted for ESOPs reported at INR 4.7bn, up 16% YoY (PLe: INR 4.6bn). Overall hospital OPM declined by 60bps YoY and 50bps QoQ to 21.5%. Diagnostic business EBITDA increased 14% YoY to INR 970mn (in line with Ple), with OPM of 27.1% (up ~120bps YoY). Net debt decreased by INR 1bn QoQ to INR 22.3bn. FORH enters in new market of Cuttack; signed an O&M agreement for a 300-bed greenfield hospital
Healthy occupancy; moderate ARPOB growth:
FORH consolidated revenue increased by 18% YoY (8% QoQ) to INR 25.5bn; in line with our estimates. Hospital business revenue increased 19% YoY to INR 21.9bn; in line with our estimates. Diagnostic business net revenue grew 9% YoY to INR 3.6bn; in line with our estimates. Hospital occupancy increased by 100 bps QoQ to 69%; but flat YoY. ARPOB improved by mere 3% YoY and 6% QoQ to INR 74.3k. Revenue growth was largely by net bed addition to tune of 700 beds YoY.
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