IGI Logo

Growth steady, margins set to rise

Fortis reported a decent quarter, supported by improvements in both its hospital and diagnostics businesses. In 4QFY25, Revenue/EBITDA/Adj PAT grew 12%/14%/28% YoY, respectively, largely in line with our expectations. Within segments, hospital revenue grew 14.2% YoY, with margins at 21.9%. Diagnostic revenue increased 3% YoY, with margins expanding to 23.4% (removing rebranding related one-offs) in 4Q. Both business segments benefited from improved operational efficiencies. Notably, the company saw material improvement in FEHI and Jaipur, while FMRI, Mohali, and Shalimar Hospital continued to grow at strong double-digit rates. The company added 200 beds in FY25 and plans to add 993 beds in FY26, most of which are brownfield projects. Due to on-going efforts to improve the profitability of underperforming units, combined with significant brownfield expansion, the company is poised to achieve over 15% topline growth over the next three years, along with 200–300 bps margin expansion. With improved profitability, the company is also expected to generate INR 39.8bn in free cash flow over the next three years. At the current market price (CMP), the stock is trading at 26.2x on a 1Y forward EV/EBITDA basis, which we believe is likely to expand in the coming years due to improving fundamentals. We value the company on a SOTP basis to arrive at a target price of INR 810. Maintain BUY on the stock

* Operational overview: Hospital business revenues rose 14.2% YoY to INR 17bn and operating EBITDA increased 11.7% to INR 3.7bn, though margins slightly dipped to 21.9% from 22.4% due to higher provisions. The diagnostics business (Agilus) reported a 3.0% YoY gross revenue growth to INR 3.5bn and a 3.5% net revenue increase to INR 3bn. Diagnostics EBITDA margins (gross revenue basis) improved to 18.0% from 14.0%, and excluding one-offs (rebranding and acquisition costs), reached 23.4% from 16.3%. On a net revenue basis, margins rose to 20.4% (26.7% ex-one-offs) from 16.0%. Net debt increased to INR 16.9bn as of March 31, 2025, with a Net Debt to EBITDA ratio of 0.93x, up from 0.17x, driven by funds raised for Agilus stake acquisition

* Key Metrics: Hospital occupancy improved to 69% in Q4FY25 from 66% in Q4FY24, with occupied beds up 5.5% to 2,855. ARPOB grew 8.4% YoY to INR 25.1mn/p.a., supported by a surgical vs. non-surgical mix of 58:42 (vs. 57:43 Q4FY24). International patient revenue rose 17% to INR 1.5bn, contributing 8.1% to hospital revenues (vs. 7.9% in Q4FY24). Digital channel revenue surged 25.6% YoY, accounting for 29.2% of hospital revenues (vs. 26.6% in Q4FY24). In diagnostics, Agilus conducted ~9.6mn tests (vs. ~9.2mn ), added ~140 customer touchpoints (total: 4,171), and saw preventive portfolio revenue grow 13%, contributing 11% to diagnostics revenue (vs. 10% Q4FY24)

* Growth Plans Executed in FY25: Fortis acquired the Fortis brand and trademarks for INR 2bn, eliminating 0.3% royalty costs, and consolidated a 31.52% stake in Agilus, raising its ownership to 89.2%. It acquired Shrimann Superspecialty Hospital in Jalandhar (228 beds, expandable to 450+) for INR 4.6bn and commenced operations at Fortis Manesar (350 beds) in September 2024. The network added ~200 beds, mainly at Shalimar Bagh and Anandpur, and divested Richmond Road Hospital. CapEx of INR 7bn supported high end equipment (Gamma Knife, MR Linac, robots) and digital initiatives, including EMR rollout in 15 facilities. Diagnostics expanded with new genomics and transplant immunology labs, increasing customer touchpoints to 4,171.

* Future Growth Plans: Fortis plans to add ~2,000 beds by FY29, with ~1,000 in FY26 (50% in H1, 50% in H2) across Manesar, FMRI, Noida, BG Road, Faridabad, and Jalandhar. Brownfield expansions at high-occupancy facilities (75–80%) are expected to break even within 6 months. Inorganic growth will target 350+ bed hospitals in Bengaluru, Kolkata, Punjab, Delhi NCR, and Mumbai. Hospital revenue is projected to grow 14–15% in FY26 (5–6% ARPOB, 8–9% volume), with 150–200 bps margin expansion. Diagnostics aims for double-digit revenue growth and 23% EBITDA margins (net revenue basis), targeting 25% in 2–3 years.

* Hospital-Level Highlights: Fortis Manesar, operational since September 2024, runs at 40% occupancy on 90 beds, with plans for 120 more by FY26-end, targeting 50%+ occupancy and breakeven before then; it recorded a budgeted INR 120mn EBITDA loss in Q4FY25. Ten facilities achieved >20% EBITDA margins, contributing 73% to hospital revenues (vs. 8 facilities at 62% in FY24). Five facilities, including Ludhiana 2 and Manesar, are below 10% margins. FEHI (Escorts, Delhi) improved to 15%+ EBITDA, Jaipur is recovering with expected healthy margins by FY26-end, Vashi faces challenges from government obligations and clinician attrition, Ludhiana 2 took an impairment charge, and Faridabad saw a positive impairment write-back due to strong performance.

* Financial Highlights: - Revenue grew 12% YoY to INR 20.1bn (In line) - EBITDA grew 14% YoY to INR 4.4bn (In line) - EBITDA margins at 21.7% up 36bps YoY / 224bps QoQ (in line) - Adj PAT at INR 2.3bn , up 30% YoY (7% beat)

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361