Buy Fortis Healthcare; target of Rs 515: Prabhudas Lilladher

Prabhudas Lilladher's research report on Fortis Healthcare

Fortis Healthcare (FORH) Q1FY25 EBITDA was largely in line with our estimates. Though hospital margins saw 170 bps YoY improvement in FY24, we see further margin improvement in hospital segment aided by 1) improving case and payor mix 2) cost rationalization initiatives and 3) new brownfield bed addition. Our FY25E and FY26E hospital EBITDA largely remains unchanged.

Outlook

We expect 21% EBITDA CAGR over FY24-26E. At CMP, stock is trading at 22x EV/EBITDA on FY26E, adjusted for Agilus stake. Maintain ‘Buy’ rating with TP of Rs 515/share; valuing hospital segment at 23x and diagnostic at 18x EV/EBITDA on FY26E. Resolution of legal issues and profitability improvement in Agilus will be key for re-rating. Fortis will invest Rs18bn in diagnostic business which will increase its stake to 88%. Given growth in diagnostic segment have been muted; investments will see RoCE dilutive in near term. However; Agilus stake purchase at 22x EV/EBITDA on trailing basis is at much discount to peers.

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