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Quick Pointers:

* Plans to add another 400-500 beds over next 1 year

* Guided for 25% EBITDA margin for hospital segment in next 2 years

Fortis Healthcare (FORH) reported strong EBITDA of Rs5.6bn in Q2FY26, up 28% YoY, marking another quarter of a strong beat across segments. Though hospital margin has improved by 500bps bps YoY over FY23-H1FY26 to 22.5%, 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 Shrimann Hospital and the O&M agreement with Gleneagles.

Our FY27E and FY28E EBITDA stands increased by 2-5%. We expect EBITDA to clock 24% CAGR over FY25-28E. At CMP, the stock is trading at 24x EV/EBITDA on FY28E, adjusted for Agilus stake. Maintain ‘BUY’ rating with revised TP of Rs 1,150/ share, valuing both the hospital segment and diagnostic segment at 30x EV/EBITDA on FY28E.

EBITDA beat across segments: FORH’s consolidated EBITDA increased 28% YoY (13% QoQ) to Rs5.6bn, 11% above our estimates. Hospital business EBITDA came in at Rs4.5bn, up 27% YoY (PLe: Rs4.1bn). Overall hospital OPM improved by 140bps YoY to 22.9%. Diagnostic business EBITDA increased 31% YoY to Rs1.05bn, with OPM of 29.4%, given no branding related expenses in Q2. Net debt increased by Rs3.5bn QoQ to Rs22.2bn as Jalandar unit got consolidated.

Strong ARPOB; occupancy improves QoQ despite new bed addition: Hospital business revenue increased 19% YoY (7% QoQ) to Rs19.7bn, vs. our estimates of Rs18.2bn. Diagnostic business net revenue grew 7.1% YoY to Rs3.6bn. Hospital occupancy improved QoQ to 71% vs. 69% in Q1. ARPOB further improved by 6% YoY to Rs68.8k, driven by higher oncology mix and higher complexity.?

Key Conference Call Takeaways:

? Bed expansion: FORH added ~550 operational beds in H1FY26 (~150 beds in Q1 and ~400 beds in Q2), of which 360 were through inorganic route - Jalandhar (190) and Greater Noida units (170). The management has guided for operationalizing additional 400–500 beds in FY27, driven by 200 beds at FMRI (expected in H1FY27), 70 beds in Kolkata, and ongoing brownfield expansions at Manesar and Bengaluru.

? O&M contract hospitals: O&M with Gleneagles covers 5 hospitals and 1 clinic (excluding Mumbai); integration is progressing well. Mumbai unit will be acquired later, as 6th facility. Additionally, FORH has signed a 15-year lease for 200 beds with Greater Noida hospital (previously under O&M and now will get consolidated); it is generating revenue of Rs1.2bn/year, and 2–3% EBITDA margin, with ramp-up expected in 6 months to 15%. Lucknow greenfield hospital has signed O&M contract with the Ekana Group (550 beds).

? Manesar unit: The facility turned EBITDA positive within a year of commencing operations and is generating quarterly revenue of ~Rs400mn. The management expects the unit to deliver ~20% revenue growth in H2FY26, driven by improving occupancy and case mix. It expects insurance empanelment (completed in Q2) to further support growth through improved patient access and a more diversified case mix.

? Hospital segment margin and guidance: Mulund and Jalandhar units were added to +20% EBITDA margin. Noida unit is expected to reach ~15% EBITDA margin in the next 6 months with equipment and clinical investments. The management expects margin to reach 25% in the next 2 years, also upped its earlier FY26 margin guidance to +22.5%.

? ARPOB drivers: ARPOB growth was driven by a higher mix of oncology and robotic surgeries (+66% YoY). The management reiterated ARPOB growth guidance of 5–6% on a sustainable basis, led by improved case mix and a modest 1–1.5% contribution from pricing.

? Occupancy: The management expects occupancy to remain in the 70– 75% range, with most mature hospitals already operating near optimal levels and potential for further improvement in 2–3 facilities.

? CHGS rate revision impact: The recent CGHS tariff revision is expected to have a positive margin impact; CGHS account for ~4.3% of revenue.

? Legal expenses: These expenses are expected to reduce by ~50% to Rs150–200mn (vs. Rs300–400mn earlier) as open-offer related costs taper off.

? International business guidance: The business is expected to retain its single-digit revenue contribution but grow in double digits in absolute terms.

? Agilus business: B2C:B2B mix stood at 52:48. Agilus conducted 10.6mn tests during the quarter, flat YoY owing to the discontinuation of the lowmargin Delhi government “Mohalla Clinic” contract. FORH holds 89% stake in Agilus; the management remains comfortable with this level but is open to increasing its stake if an attractive opportunity arise

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