Buy Fortis Ltd for the Target Rs. 995 by Choice Institutional Equities Ltd
Hospital expansion & diagnostics premiumisation drive growth:
FORH is well-positioned for sustained growth, driven by a ~2,000-bed expansion pipeline till FY29, strategic acquisitions, improving occupancy and operating leverage. Meanwhile, Agilus Diagnostics is poised for accelerating growth, supported by rising B2C penetration, wellness and specialised testing, and network expansion. Investments in advanced diagnostics and operational efficiency will further strengthen growth prospects across both businesses.
Q2FY27 performance in-line; with strong sequential earnings growth
* Revenue grew 17.3% YoY and 7.5% QoQ to INR 27.3 Bn (vs. CIE estimate: INR 27.4 Bn), driven by increase in occupied beds.
* EBITDA rose 12% YoY / 16% QoQ to INR 6.2 Bn; margin contracted by 107 bps YoY and improved by 168 bps QoQ to 22.8% (vs. CIE estimate: 23%).
* APAT grew by 2.1% YoY and 19.7% QoQ to INR 3.1 Bn (vs. CIE estimate: INR 3.2Bn), with a PAT margin of 11.3%
Strong bed expansion and cluster synergies to drive sustained growth:
FORH plans to operationalise ~2,000 additional beds over the next 3–5 years, largely through brownfield expansions and acquisitions, with committed capex of around INR 3,500 Cr. An additional 400-bed greenfield hospital in Delhi NCR and further greenfield opportunities offer upside beyond the current pipeline. Improving occupancy and complex case mix should support revenue growth and profitability. With occupancy already at 72%, 13% inpatient volume growth and ARPP growth of 6.8%, FORH has demonstrated strong underlying demand. Ramp-up of Manesar and People Tree, alongside cluster synergies and deeper regional presence, provides further growth visibility.
Diagnostics business: Premiumisation and network expansion set to accelerate growth:
Agilus Diagnostics offers a compelling growth opportunity as rising preventive healthcare awareness, increasing demand for specialised testing and deeper consumer penetration support its next growth phase. Management anticipates 12–13% revenue growth in FY27, with growth potentially accelerating to mid-teens over the next few quarters. The business is strengthening its B2C franchise, with the consumer segment already contributing 54% of revenue, while wellness contribution has increased to 15%. Wellness and specialised testing revenues grew 28% and 14% YoY, respectively, highlighting improving business mix. Expansion to 4,551 customer touchpoints, alongside investments in next-generation sequencing, molecular diagnostics, automation and digital capabilities, will improve accessibility, test sophistication and operating efficiency
View and valuation:
We forecast Revenue/EBITDA/APAT to expand at a CAGR of 16.8%/18.3%/24.3% over FY26–FY29E. We retain our ‘BUY’ rating with a target price revised to INR 995 (from INR 1,140), based on an SoTP valuation (see Exhibit 2). We value the hospital business at 24x (from 29x) EV/EBITDA on an avg. of FY28–29E and the diagnostics segment at 20x (from 25x) EV/EBITDA on an avg. of FY28–29E, factoring in the revised margin guidance and recent regulatory changes.
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