Buy Fortis Healthcare; target of Rs 330: Prabhudas Lilladher

Prabhudas Lilladher's research report on Fortis Healthcare

Fortis Healthcare (FORH) reported strong recovery in the quarter. Revenues improved 6% YoY (8% QoQ) to Rs.14.8bn vs our estimates of Rs.14.5bn. Hospital business showed strong revenue growth of 15% QoQ to Rs.11.9bn vs our estimates of Rs.11.3bn. Diagnostic business saw revenue de-growth of 27% YoY (13% QoQ) to Rs. 2.9bn vs our est. of Rs.3.2bn. Hospital occupancy improved to 65% vs 59% QoQ. Further ARPOB saw a healthy growth of 21% YoY and 4% QoQ to Rs.53.7K on better case and payor mix. Net debt marginally increased by Rs 360mn QoQ to Rs 5.85bn. We remain positive on FORH and expect margin improvement across segments given 1) improving case mix in hospital segment with cost rationalization initiatives 2) traction in international patient’s footfall and 3) increase in test volume on network expansion in diagnostics business.

Outlook

We expect 14% Pre Ind as EBITDA CAGR over FY22-24E. At CMP, stock is trading at 17x EV/EBITDA on FY24E, adjusted for SRL stake. We broadly maintain our estimates and recommend ‘Buy’ rating with TP of Rs 330 post valuing diagnostics at 22x FY24E EV/EBITDA and hospitals at 20x FY24E EV/EBITDA. Resolution of legal issues would be a key additional trigger for re-rating.

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