Buy Fortis Healthcare Ltd For Target Rs. 950 by Prabhudas Liladhar Capital Ltd
Margin caution for H2
Fortis Healthcare (FORH) reported EBITDA growth of 19% 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
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 FY28E and FY29E EBITDA ex ESOP broadly remain unchanged. We expect FORH to clock 19% EBITDA CAGR ex ESOP over FY26-28E. At CMP, the stock is trading at 19x EV/EBITDA on Sept 2028E, adjusted for Agilus stake and ESOP. Maintain ‘BUY’ rating with revised TP of INR 950/ share; valuing at 23x EV/EBITDA for hospital segment on Sept2028E.
Delivers 21% YoY EBITDA growth in Hospitals:
FORH’s consolidated EBITDA adjusted for ESOPs charges; increased 19% YoY to INR 6.6bn, vs our estimate of INR 6.5bn. Consol margins adjusted for ESOPs increased by ~35bps YoY and 190bps QoQ to 24.2%. Hospital business EBITDA adjusted for ESOPs reported at INR 5.5bn, up 21% YoY (PLe: INR 5.3bn). Overall hospital OPM increased by 40bps YoY and 175bps QoQ to 23.3%. Diagnostic business EBITDA increased 12% YoY to INR 1.2bn (in line with Ple), with OPM of 29.9% (up ~60bps YoY). Net debt decreased by INR 450mn QoQ to INR 21.9bn. FORH expanded its presence in Delhi; signed an O&M agreement for a 400-bed hospital and acquired Suguna Hospital, a 110-bed facility in Bengaluru, with expansion potential to ~150 beds.
Occupancy improved on seasonality & healthy 7% YoY ARPP growth:
FORH consolidated revenue increased by 17% YoY (8% QoQ) to INR 27.3bn; we estimated INR 26.8bn. Hospital business revenue increased 19% YoY to INR 23.4bn; we estimated INR 22.8bn. Diagnostic business net revenue grew 10% YoY to INR 3.9bn; in line with our estimates. Hospital occupancy increased by 300 bps QoQ and 100bps YoY to 72%. ARPP grew ~7% YoY to INR 210k during the quarter
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SEBI Registration number is INH000000933
