Fortis Healthcare can test Rs 150: Rajen Shah

Fortis Healthcare can go up to Rs 150 in the next 18 months, says Rajen Shah, Angel Broking.

Shah told CNBC-TV18, "We are extremely positive on the potential of the Indian healthcare industry and in the healthcare space hospital is one business, which we believe should see a very strong growth over the next 8-10 years. If you compare India with global developed economies as well as emerging economies you would realize that the healthcare infra in the country is lagging behind substantially. Just for the sake of comparison India has got 9 beds for about 10,000 people and the global average is about 35 beds for 10,000 people. So we can understand the huge potential the hospital business offers over the next 8-10 years."
He further added, "In the hospital business there are two major players listed - one is Apollo and other is Fortis. If you see Apollo has run up a lot. It is trading at about Rs 850 at a market cap of Rs 12,000 crore and looks to be richly priced. Fortis looks interesting at this point of time."
"If you see Apollo has got about 50 hospitals and Fortis has got about 76 hospital, that is 50 percent more. Number of beds if you see Apollo has about 8,300 beds, Fortis has got a little more than 12,000 beds, so again that is 50 percent more."
"If you see the consolidated revenue of Apollo expected for the current year should be around Rs 3,800-4,000 crore. Fortis should be reporting about Rs 6,000 crore of consolidated revenue, that is again 50 percent more. But if you see the market cap Apollo is trading at a market cap of about Rs 12,000 crore or so and Fortis logically should be trading at Rs 18,000 crore, but it is trading at just Rs 4,000 crore market cap. The main reason for trading at this low market cap is the huge debt it has on the balance sheet. Steps have been taken by the management to de-leverage the balance sheet and reduce the debt."
"Last month they raised about Rs 2,500 crore via selling 72 percent stake in Religare Health Trust. These would go towards reduction of debt which will bring down the interest cost substantially in the coming quarters. The full impact will be realized next year."
"Based on all this next year we are expecting 20 percent growth, management is talking about 25 percent, but we have estimated 20 percent growth in our estimates. Taking into consideration this 20 percent growth for next year and the Rs 2,200 crore which will go towards reduction of debt, we are expecting an EPS of about Rs 4 for Fortis. So I think that the stock can go up to at least about Rs 150 levels in the next 18 months."
"The stock has got very low downside, just about 10 percent, because last year in December when we touched 15000 on the Sensex Fortis was at about Rs 82. It is trading just 20 percent above that level. That is why I feel that the downside in the stock is very low and looking at the potential the upside could be very big in the long-term and we know 
that the Singh brothers have created immense wealth for shareholders in case of Ranbaxy, so I do see a repeat of that in Fortis Healthcare as well."
"The promoter holding is at about 81-82 percent, so probably by June 2013 we can also expect some QIP to raise funds and that would be nothing less than Rs 150 a share to bring down the promoter holding to about 75 percent. So I think it is a decent stock to own in the current scenario." Disclosure: We have positions in the above stock.