Add This Mid Cap Hospital Stock, Shares Can Surge 15%: ICICI Securities

ICICI Securities has given "Add" call to Fortis Healthcare Ltd. for a target price of Rs 299. The brokerage maintains its positive outlook in light of the robust hospital growth and claims 15% potential upside. It is a mid-cap company is the Hospital sector with a market capitalization of Rs 19,798.78 crore. The company is engaged in hospitals and allied businesses.

Legal setback, but no fundamental change

The Supreme Court of India (SC) has announced its judgement in the Daiichi Sankyo-Fortis-IHH case. Excerpts from the judgement: (i) stay order on the open offer of 26% post-Fortis-IHH deal in FY19 continues; (ii) pronounces jail term of six months for the Singh brothers; (iii) remands the issue to Delhi High Court (HC); and (iv) directs Delhi HC to consider a forensic audit for the Fortis-IHH deal. Fortis will seek legal advice on the matter. As legal battle ensues, IHH remains the majority stakeholder (~31%) of Fortis and shall continue to operate the business as usual. Hence, we believe the stock holds fundamental value with recovery in growth, cost optimization and potential for operating leverage in both its verticals (hospitals and diagnostics).

Stock Outlook

The current market price of the stock is Rs 262.25 apiece. Its 52-week low level is Rs 219.75 which was recorded on 20 June 2022 and the 52 week high level is Rs 325 which was recorded on 19 September 2022, respectively.

Return in past 5 years

In the past 1 week its share tanked 11.76% and in the past 1 month 11.4%, respectively. However, in the past 3 months, its share surged by 11.08%, giving a positive return. Over the year, the shares fell 3.19%, giving a negative return. Whereas, over the past 3 & 5 years, the shares surged 91.56% and 74.78%, respectively.

Outlook

The Brokerage said, "We expect revenue and EBITDA CAGRs of 12.6% and 10.5% over FY22- FY24E for Fortis. However, EBITDA margins would likely remain stable at ~17-18% with declining contribution of covid-led revenues, largely offset by continuous growth in the hospital business, recovery in SRL (non-covid business), operating leverage and cost rationalisation."

Valuations and risks

Valuation - ICICI Securities Maintain ADD with a target price of Rs 299 apiece based on FY24E SoTP valuation.

Key downside risks - Ongoing regulatory concerns with any adverse ruling in the case and delay in margin recovery.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.