Buy Fortis Healthcare target of Rs 710 Prabhudas Lilladher

Prabhudas Lilladher's research report on Fortis Healthcare

Fortis Healthcare’s (FORH) Q2FY25 EBITDA at Rs4.3bn was 10% above our estimates. Though hospital margins improved by 170bps/300bps YoY in FY24/H1FY25, we see further scope for improvement aided by 1) improving case and payor mix, 2) cost rationalization initiatives and 3) new brownfield bed additions. Fortis will invest Rs18bn in the diagnostic business, which will increase its stake to 88%. Q2 saw sharp improvement in diagnostic segment profitability partly aided by seasonality. Sustainability of margins and likely pickup in revenue growth make the acquisition value accretive. Our FY26E and FY27E EBITDA stands increased by 3-4%. We expect EBITDA to clock 20% CAGR over FY24-27E.

Outlook

At CMP, the stock is trading at 23x EV/EBITDA on FY27E, adjusted for Agilus stake. Maintain ‘Buy’ rating with revised TP of Rs710/share, valuing the hospital segment at 26x and diagnostic at 25x EV/EBITDA on FY27E.