Buy Fortis Healthcare; target of Rs 360: Prabhudas Lilladher

Prabhudas Lilladher's research report on Fortis Healthcare

Fortis Healthcare (FORH) reported healthy growth in the quarter. Revenues improved 10% YoY (8% QoQ) to Rs.16.1bn vs our estimates of Rs.15.4bn. Hospital business showed strong revenue growth of 9% QoQ to Rs.13bn vs our estimates of Rs.11.3bn. Diagnostic business saw net revenue de-growth of 15% YoY (up 5% QoQ) to Rs. 3.1bn in line with our estimates. Non COVID revenues grew by 5% YoY. Hospital occupancy improved to 70% vs 65% QoQ. ARPOB further improved 5% YoY and 1% QoQ to Rs.53.9K on better case and payor mix. Net debt marginally decreased by Rs 200mn QoQ to Rs 5.65bn. 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. We expect 16% Pre IND AS EBITDA CAGR over FY22-25E.

Outlook

At CMP, stock is trading at 19x EV/EBITDA on FY24E, adjusted for SRL stake. We broadly maintain our estimates and recommend ‘Buy’ rating with TP of Rs.360 (earlier at Rs 330) as we roll forward to Sept 2024E. We are valuing 20x EV/EBITDA across segments. Resolution of legal issues would be a key additional trigger for re-rating.