Fortis Healthcare Reports 65% Gain In Hospital Occupancy, Buy Stock For 18% Return

Top brokerage firm Prabhudas Lilladher has given a buy rating to the stock of Fortis Healthcare. The brokerage firm said that they remain positive on Fortis Healthcare and expect margin improvement across segments given the improving case mix in the hospital segment with cost rationalization initiatives traction in international patient footfall and an increase in test volume on network expansion in the diagnostics business.

Stock To Buy: Target Price

The Current Market Price (CMP) of Fortis Healthcare is around Rs. 304. Prabhudas Lilladher has estimated a Target Price for the stock at Rs. 360. This stock has the potential to give an 18.42% return, in the upcoming 12 months.

Stock Outlook
Current Market Price (CMP)	Rs. 304
Target Price	Rs. 360
Potential Upside	18.42%
52-week high share price	Rs. 325
52-week low share price	Rs. 219.75

Quarterly earnings

Fortis Healthcare 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.

Stock Valuation

Maintaining a buy rating, Prabhudas Lilladher said, "We expect 16% Pre IND AS EBITDA CAGR over FY22-25E. 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 target price 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."

Key upside

The brokerage firm informs that total 2000 beds will be added of which 1300 bed expansion plan have already been announced and another 700 beds could be added further on existing capacities. Expansion plan of 300-400 beds p.a. over next 3-4 years largely through brownfield expansion for which blended capex plan would be at of Rs. 8mn/bed. Out of 1300 beds brownfield expansion, 50% of that will be coming from NCR. Guidance on occupancy at 75%; drivers would be increasing volumes, improvement in international biz. International biz target to reach 10-12% in medium term from current level of 8.5%

Disclaimer

The above stock was picked from the brokerage report of Prabhudas Lilladher. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.