Rekha Jhunjhunwala-Backed Healthcare Stock Gets Buy Call Despite Muted Q2 Results: Buy?

With a market valuation of Rs 27,654.12 Cr, Fortis Healthcare Ltd. is a large-cap company in the healthcare industry. Although Fortis Healthcare's stock has gone up 30% year to date, Prabhudas Lilladher, a brokerage firm, believes there is still room for growth in the stock. Despite the company's dismal Q2 earnings, the brokerage has set a target price of Rs 400 for the shares of Fortis Healthcare, which ended on the BSE on Friday at Rs 366.30 apiece.

Fortis Healthcare Financials

For the second quarter that ended on September 30, 2023, Fortis Healthcare Ltd. reported a 15.7% year-on-year (YoY) fall in net profit at Rs 183.9 crore. Fortis Healthcare reported a net profit of Rs 218.2 crore during the same quarter in the previous year, according to a regulatory filing from the company. Compared to Q2FY23, when it was Rs 1,607 crore, the business's revenue from operations climbed by 10% to Rs 1,770 crore in Q2FY24.

In comparison to Rs 303.2 crore during the same time in the previous fiscal year, EBITDA climbed by 8.8% to Rs 329.9 crore in the second quarter of the current fiscal year. The EBITDA margin was 18.6% in Q2FY24, down from 18.9% in Q2FY23. The net debt to EBITDA ratio for Fortis Healthcare reached 0.29, down from 0.44 the year before. Net debt stood at Rs 393 crore as of September 30, 2023 from Rs 340 crore on March 31, 2023.

Fortis Healthcare Share Price Target

"Fortis Healthcare (FORH) Q2FY24 hospital EBITDA was in-line with our estimate, led by divestment of Arcot road unit and seasonality. Though hospital margins improved to some extent in Q2, we see further margin improvement in hospital segment aided by 1) improving case and payor mix 2) cost rationalization initiatives and 3) divestment of non-profitable assets. Our FY24E and FY25E EBITDA broadly remain unchanged. We expect 18% Pre IND AS EBITDA CAGR over FY23-25E. At CMP, stock is trading at 19x EV/EBITDA on FY25E, adjusted for Agilus stake. Maintain 'Buy' rating with revised TP of Rs 400/share (Rs. 365 earlier); valuing hospital and diagnostic segment at 20x EV/EBITDA on Sept 2025E. Resolution of legal issues and further monetization of non-profitable assets would be a key additional trigger for re-rating," said the brokerage firm Prabhudas Lilladher.

"FORH is on track to add 250 beds in H2FY24 across Anandpur, BG road and Ludhiana. Mgmt is also exploring opportunities in Delhi NCR and Punjab along with evaluation of brownfield opportunities in Mohali and Shalimar Bagh. Mohali unit got approval for adding additional 400 beds. With Mohali and Manesar expansion, the total bed expansion plan of 2,200 beds in 3-4 years. Augmented LINAC, Cath Labs and Ortho Robots in some of its key facilities such as Noida, Anandpur, Shalimar Bagh and FMRI. Benefit of Arcot road monetization has been included in margins; however, sees further scope of expansion in margins as on-boarded eminent clinicians in the medical specialties of Oncology, Renal Sciences, Neurology, Cardiology and General Surgery in Q2 and majority of doctor cost absorbed in H1FY24. Incremental cost of Rs.60-70mn incurred with respect to legal and professional charges restricted margin improvement in Q2 despite strong seasonality and Arcotl unit monetization. Reiterated margin and occupancy guidance at 20% and 70% by FY25; respectively. Mgmt focus will be on improving occupancy in Mulund and BG road unit. ALOS increased QoQ to 4.2 days due to change in calculation methodology. Hospital revenue growth of 12% YoY pertains to 3% from price hike, 7-8% inpatient volume and case mix," the brokerage note stated.

Fortis Healthcare Shareholding Pattern

During Q2FY24, the company reported promoters' shareholding of 31.17%, FIIs stake of 26.31%, DIIs stake of 26.55%, and public stake of 15.97%. As per the shareholding pattern of Fortis Healthcare for the July to September 2023 quarter, Rekha Jhunjhunwala wife of late billionaire stockholder Rakesh Jhunjhunwala held 3,51,52,108 shares or 4.66% fully paid-up equity stake in the company.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.