CRISIL revises Fortis Healthcare`s fundamental grade to 3/5

16943 Investors following Fortis Health. Share this News with them.

0

Like this story, share it with millions of investors on M3

CRISIL revises Fortis Healthcare`s fundamental grade to 3/5

CRISIL Research has revised Fortis Healthcare (India) Ltd’s fundamental grade to 3/5 from 4/5. The grade indicates that the company’s fundamentals are ‘good’ relative to other listed equity securities in India.

Post your opinion here

 

0

Tweet

Share on Tumblr

Fortis Health BSE | NSE 30/05/12 Are Mutual Funds betting on Fortis Health?

CRISIL Research has revised Fortis Healthcare (India) 's fundamental grade to 3/5 from 4/5. The grade indicates that the company's fundamentals are 'good' relative to other listed equity securities in India.

Fortis Healthcare (India) Ltd's (Fortis') Q2FY12 results were significantly below CRISIL Research's expectations. Though revenue grew 70% y-o-y (aided by acquisition of Super Religare Laboratories [SRL] in May 2011), it was marginally below our expectations. Consolidated EBITDA margin of 14.3% was in line with our expectations but net loss of Rs 36 mn (adjusted for forex loss on external borrowings) was substantially below our profit estimates due to higher interest cost, lower-than-expected other income and losses in SRL. We revise our fundamental grade to 3/5 from 4/5 due to deteriorating balance sheet on higher-than-expected debt, delays in SRL ramp-up, shifting away from India-centric focus, the international business acquisition overhang and weak disclosure levels for inter-group transactions. Delay in SRL's IPO and higher working capital led to an increase in debt levels and interest costs. Hence, we lower our earnings estimates.

Q2FY12 result analysis
• Revenues grew by 70.5% y-o-y to Rs 6,101 mn aided by consolidation of Fortis' subsidiary - SRL. The hospital business was up 35% y-o-y to Rs 4,830 mn supported by growth in the existing hospitals. The diagnostics business reported revenues of Rs 1,270 mn.

• EBITDA margin improved by ~200 bps y-o-y to 14.3% supported by margin expansion in the existing hospitals. The hospital and the diagnostics business posted 15% and 11.4% margins, respectively.

• The company reported net loss of Rs 126 mn in Q2FY12 against a profit of Rs 748 mn in Q2FY11. Adjusting for the forex loss of ~Rs 90 mn, Fortis posted net loss of Rs 36 mn due to net loss of Rs 32 mn in SRL, lower other income and higher debt and, subsequently, high interest costs.

Key developments - acquisition of international business
Fortis' acquisition of promoter-owned entity - Fortis Healthcare International Pte Ltd (FHIP) - is at reasonable valuations of P/BV of 1.0x and FY12 EV/EBITDA of 14.0x; however, its future growth and successful integration will be a challenge.

Earnings estimates - revised downwards
We lower revenue and EBITDA margin estimates due to slow ramp-up in SRL's business. Earnings have been lowered by 74% to Rs 1.1 in FY12 and 49% to Rs 2.4 in FY13 factoring in delays in SRL's IPO and higher debt levels due to increase in working capital requirements.

Valuation: Current market price has upside
We continue to use the discounted cash flow method to value Fortis. In line with revision in earnings estimates and increase in risk premium, we lower our fair value to Rs 112 per share from Rs 185. Given the current market price, our valuation grade is 4/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"