Buy Fortis Healthcare Ltd for the Target Rs 1,120 by Motilal Oswal Financial Services Ltd
Volume drives beat; CONGO momentum, occupancy resilience key highlights Brownfield ramp-up and diagnostic expansion keep growth intact
* Fortis Healthcare (FORH) delivered a better-than-expected financial performance in 4QFY26, with 6%/4%/13% beat on revenue/EBITDA/PAT. FORH maintained profitable growth trajectory in FY26, with 17%/30%/24% YoY growth in revenue/EBITDA/PAT.
* In the hospital segment, ARPOB growth was modest YoY at 2% in 4Q, implying that strong revenue growth was attributed to an increase in the number of patients being treated. Notably, revenue from focus specialties (i.e., CONGO – Cardiac, Oncology, Neuroscience, Gastroenterology and Orthopaedics, and renal science) increased 18% YoY in 4Q.
* Occupancy was robust at 68% (vs. 69% in 4QFY25) despite bed additions.
* The diagnostics segment posted ~5% YoY growth in the number of tests conducted in 4Q, implying balanced growth between volume and value.
* We reduce our earnings estimates by 5%/4% for FY27/FY28, factoring in
a) temporary disruptions in international patient flows due to the West Asia crisis
b) the discontinuation of chemotherapy drugs for the CGHS pool of patients
c) increased opex for the addition of doctor talent resources. We value FORH on the SoTP basis, valuing the hospital business at 30x 12- month fwd EV/EBITDA and the diagnostics business at 23x 12-month fwd EV/EBITDA to arrive at a TP of INR1,120.
* FORH is on a robust growth path, with
a) brownfield bed additions in hospitals with high occupancy,
b) a scale-up in recently acquired hospitals
c) increasing the test offerings and reach in the diagnostic space. Accordingly, we expect 20.5% CAGR in earnings over FY26-28. Maintain BUY.
Ends FY26 on a healthy 24% YoY earnings growth
* 4Q revenue grew 17.8% YoY to INR23.6b (our est. INR22.3b), adjusted for one-time brand fee provision write-back.
* EBITDA margin expanded by 80bp YoY to 22.5%.
* EBITDA grew 22% YoY to INR5.3b (our est. INR5b).
* An exceptional item of INR125m was related to a charge of impairment in associate company.
* Adj. PAT grew 22.1% YoY to INR2.7b (our est. INR2.3b).
* FY26 revenue/EBITDA/PAT grew 17%/31%/25% YoY to INR91.0b/INR20.8b/ INR10.6b.
Hospital revenue growth stable; diagnostics EBITDA remains intact
* Hospital segment revenue rose 19% YoY to INR20.2b in 4Q. EBITDA grew 20% YoY to INR4.5, with EBITDA margin of 22%.
* Diagnostics segment revenue increased by 8.6% YoY to INR3.8b. EBITDA grew 21% YoY to INR760m, with EBITDA margin of 20.1%
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