Top Conviction Ideas : Buy Fortis Healthcare Ltd for Target Rs. 1,070 - Axis Securities Ltd
Recommendation Rationale
* Strong Q2 Performance: Fortis Healthcare reported revenue of Rs 2,331 Cr, which is in line with our expectations and supported by higher ARPOB and stabilised occupancy levels. ARPOB stood at Rs 68,800, up 5.9% YoY, while occupancy was stable at 71%, driven by a 13% YoY growth in occupied bed days. The Hospital segment’s reported revenue and EBITDA margins stood at Rs 1,974 Cr and 22.9% with 27.3% EBITDA growth over the year.
* The rebranded Agilus Diagnostics reported revenue of Rs 358 Cr, growth of 7% YoY, and an EBITDA of Rs 104 Cr, reflecting a 29.1% margin, up 510 bps YoY. The margin improvement reflects operational recovery and efficiency gains as the business continues to scale post-rebranding.
* Aggressive Capacity Expansion: Net debt stood at Rs 2,219 Cr with Net Debt/EBITDA at 0.96x as of Sep’25, higher due to funding the acquisition of 31.5% stake in Agilus, the Fortis brand/trademark, and Shrimann Hospital, Jalandhar. 550 beds were added in H1FY26 (190 Jalandhar, 170 Greater Noida, rest organic), maintaining the FY26 target of 400–500 beds. The company signed a 15-year lease agreement for a 200-bed hospital in Greater Noida (previously O&M), which currently generates Rs 10 Cr in monthly revenue with 2–3% EBITDA, expected to reach 15% margin in six months. The annual rent for the facility is Rs 27.6 Cr. This expands the Delhi-NCR capacity to ~2,100 beds. Integration of Gleneagles O&M units is progressing well, and Fortis has forayed into Lucknow via an O&M arrangement for a 550-bedded hospital with the Ekana Group.
* Outlook: Management expects H2FY26 revenue growth to remain in line with H1 levels, supported by sustained volume expansion and continued ARPOB improvement. ARPOB is projected to rise 5–6% in FY26, led by a richer speciality mix in oncology and complex procedures such as robotic surgeries. Occupancy is likely to stay above 70% as new units like Greater Noida and Jalandhar ramp up. The company now expects FY26 EBITDA margins at 23–24%, aided by the strong Q2 margin and remains focused on achieving the long-term 25% margin target. For Agilus, volume growth is expected to move into early double digits over the next 6–8 quarters, as the base normalises post the exit from the low-ticket business and overall demand momentum sustains.
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