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Strong FY26 guidance

Quick Pointers:

? Guided for 150-200bps improvement in hospital EBITDA margins in FY26.

? Diagnostic biz’s margins to reach 23% in FY26 and 25% by FY27.

Fortis Healthcare’s (FORH) Q4FY25 EBITDA at Rs4.36bn; up 14% YoY was in line with our estimates. Though hospital margins improved by 170bps/190bps YoY in FY24/FY25, we see further scope for improvement aided by 1) improving case and payor mix, 2) cost rationalization initiatives including divestment of Richmond unit in Bangalore, ramp up of Manesar unit and 3) new brownfield bed additions. Fortis consolidated 89.2% stake in Agilus in Jan’25. We expect margins and revenue growth to further pick up from FY26 in Agilus.

Our FY26E and FY27E EBITDA stands marginally increased by 1-2%. We expect EBITDA to clock 21% CAGR over FY25-27E. At CMP, the stock is trading at 23x EV/EBITDA on FY27E, adjusted for Agilus stake. Maintain ‘Buy’ rating with revised TP of Rs785/share, valuing the hospital segment at 27x and diagnostic at 25x EV/EBITDA on FY27E.

Higher ARPOB; occupancy improved by 200 bps QoQ to 69%: Hospital business revenue increased 14% YoY (5% QoQ) to Rs17bn, vs our estimates of Rs16.7bn. Diagnostic business net revenue grew 3% YoY to Rs3.1bn. Hospital occupancy inclined to 69% vs 67% in Q3 and Q3FY24. ARPOB further improved by 8% YoY to Rs68.8k largely driven by improved case mix

Strong show across segments: FORH’s consolidated EBITDA increased 14% YoY (16% QoQ) to Rs4.36bn, in line with our estimates. Hospital business EBITDA came in at Rs3.72bn, up 12% YoY; we estimated at Rs 3.6bn. Overall hospital OPM improved by 190 bps QoQ to 21.9%. The YoY decline in margins due to commercialization of Manesar unit and also Q4FY24 had certain positive one offs. Diagnostic business EBITDA increased 34% YoY to Rs630mn, with OPM of 20.6%. Adjusted for Rs. 190mn (vs 240mn in Q3FY25) of one-off expenses relating to rebranding, margins were at 26.8% vs 23.9% in Q3FY25. Net debt increased by Rs10.3bn QoQ to Rs16.9bn. There were Rs536mn one time impairment charges taken related to Ludhiana and Sri Lanka assets in Q4FY24

Key con-call takeaways: Bed expansion: Overall ~2k bed expansion plan for FY26- 29E. Mgmt plans to add ~1,000 beds at Noida, Faridabad, Jalandhar, FMRI, BG Road in FY26. FORH operationalized 60 and 20 beds at Noida and FMRI units in Q1FY26. Out of the total greenfield 350 beds in Manesar, FORH commercialized 90 beds as of Q4 and plans to add another 120 beds once occupancy ramps up. Expect to break-even by H1FY26. Jalandhar Acquisition: FORH to finalize the deal to acquire 228 beds (potential to expand to 450 beds capacity) in FY26 which will enhance Punjab cluster capacity from 800 beds to ~1,600 beds (including Mohali & Amritsar expansions). Capex: Total capex incurred at Rs 7bn for FY25. ARPOB: growth guidance continues to be at 5-6% YoY. Occupancy- Management aiming at 70-72% occupancy levels for FY26 and Q1FY26 occupancy trend is healthy and similar to Q4. Guided to continue improving operational efficiencies supported by bed expansions, better case mix, and patient demand. Margin guidance- Hospital margin guidance of 150-200 bps YoY improvement to 22-22.5% while guided for diagnostic margins at ~23%; respectively for FY26. Escorts, Jaipur, Vashi are underperformers being restructured; not factored into margin guidance. Drivers for hospital margins: Hospital margins to improve on ramp up in brownfield expansion, full-year benefit of cost efficiencies, improved case mix, scale up in digital revenues and ramp up in occupancies through scaling operations in underperforming hospitals (e.g. Escorts, Jaipur, Vashi). Fortis brand acquired Rs2bn; will eliminates 0.3% EBITDA drag (FORH was paying 0.25% + GST as royalty) from FY26. Agilus: No further on-off cost-related branding expenses from FY26. B2C:B2B mix was at 51:49. Legal Costs: 1% EBITDA impact; expected to normalize post FY26.

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