Reduce Fortis Healthcare Ltd for Target Rs 1,004 by Elara Capital
Mostly priced in
Fortis Healthcare ’s (FORH IN) Q 4 revenue came broadly in line with our estimate s, but EBITDA was 5% lower , mainly due to lower margin in the diagnostics business. PAT came in 3% higher , helped by a low tax rate . The performance of the hospitals segment was strong with 19% YoY growth in topline and EBITDA . Additional revenue from operations & management (O&M) agreement with Gleneagles Hospital helped . The management has guided for 15% topline growth and 100bp s margin expansion in FY27. Revenue for the diagnostics segment grew 11% YoY , hit ting double -digit percent growth after a long gap. EBITDA margin rose 390bp s YoY but was down from the levels in past three quarters despite Q4 being a seasonally strong quarter. The management has guided for ~10% topline growth and similar margin in FY27. We lower our FY2 7E -28E core EPS estimates due to higher finance costs . We raise our TP to INR 1,004; retain Reduce as we see limited upside at current valuation .
Hospitals segment – Growth and margin expansion continues:
Revenue and EBITDA from the hospitals segment grew at ~19% YoY, in Q4FY2 6. Average rate per operating bed (ARPOB) grew 6% and the addition of beds at Manesar and Jalandhar bolstered top -line growth. Additional revenue from the O&M agreement with Gleneagles Hospital may have helped the growth . EBITDA margin was flat YoY; but the management has guided for ~100bp s improvement in FY27 . The management has also guided for 15%+ topline growth.
Bed additions, Gleneagles deal add to growth but largely priced in:
FORH plans to add ~ 1,800 beds to its operations between FY27 and FY30 , including some in its flagship FMRI facility. Ramp -up of these beds add to growth visibility in the next 3 -4 years . FORH recently signed an O&M contract involving five hospitals from its sister concern – Gleneagles. Revenue fees of 3% from these facilities would add to growth. However, we have already factored in most into our estimates and discounted the stock price, ac cordingly.
Diagnostics segment – Growth to pick up, but margins peaking:
Revenue for the diagnostics segment grew 11% YoY, hit ting double -digit percent growth after a long gap. The management has guided for ~10% topline growth in FY27 as well. FORH has recently acquired the erstwhile SRL brand and the management believes this will help further in customer acquisition and growth. However, EBITDA margin, while up 390bp YoY, dropped from the levels of past three quarters despite Q4 being a seasonally strong quarter. Management guidance of 23 -24% margin in FY27 does not indicate any further improvement.
Retain Reduce with higher TP of INR 1,004:
We lower our FY27 E -28E core EPS estimates due to higher finance cost . FORH trades at 60x FY2 7E core P/E and 32x FY2 7E EV/EBITDA (pre - IndAS). We see limited upside at current valuation . Retain Reduce. However, we raise our TP to INR 1,004 from INR 927 on 29x FY2 8E EBITDA (50x core EPS plus cash per share) , as we build in the recent acquisitions. Value -accretive deals with promoter companies or FORH ’s associates are key risks to our call .
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SEBI Registration number is INH000000933
