December 01, 2021

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Fortis Healthcare Rating – Buy: Firm delivered better than expectations

Fortis Healthcare Rating – Buy: Firm delivered better than expectations


SRL clocked highest quarterly revenue with a healthy 25% margin.

Fortis’s Q2FY22 revenue/Ebitda beat estimate by 6%/29%. Return of surgical work at hospitals (56%; 41% in Q1FY22) led to record-high ARPOBs at ~Rs 18.7 mn, translating to an impressive 16.7% margin. SRL clocked highest quarterly revenue with a healthy 25% margin.

Fortis’s all-round strength reinforces our conviction on its execution. Brownfield expansion and a sustained uptick across businesses should spur long-term growth. Continued focus on cost optimisation adds to positives. SRL remains a re-rating candidate given renewed focus on B2C penetration and expansion of collection centres and test mix. We are increasing FY22/23e Ebitda by 16%/10%. Retain ‘Buy’ with a revised TP of Rs 335 (Mar-23e) (from Rs 305) as we also roll over to Mar-23e.

All round performance: Hospitals revenue of Rs 10.98 bn (+9% q-o-q) was driven by high ARPOBs and higher non-Covid occupancy. The ARPOBs should moderate once other specialties come in. Hospitals clocked 16.7% margin (~18% excluding startup costs), and the company expects positive impact from the upward revision in GIPSA rates and uptick in international patients. Mgmt plans to add 250 beds in FY22 and also remains on track to add 1200–1300 beds over the next three years.

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Entering into long-term growth phase: Fortis has embarked on an expansion journey along with turning around its lagging facilities. A sustainable turnaround in Fortis Escorts (now in 10-15% margin) remains to be seen, which should spur margin expansion.

Outlook: Turning around—The increased focus on health coupled with growth initiatives and B2C focus augur well for Fortis. The improved performance allays our concern over its execution capability. Retain BUY/SO’.

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