Fortis Healthcare Q1 Results Review - Grim Outlook On Margins: ICICI Securities

ICICI Securities Report

Fortis Healthcare Ltd. Q1 FY25 result was below our expectations. Hospital revenue (up 14%) was boosted by better average revenue per occupied bed (+4% QoQ to Rs 65,924) and occupancy (+100 basis points QoQ to 67%).

However, hospital margin dropped 280 basis points QoQ to 18.5%, dragged by Fortis Escorts Heart Institute, Vashi, Jaipur and Ludhiana (new) hospitals. Management aims for 20%+ margin in hospitals in FY25.

Diagnostic margin contracted 390 bps YoY to 17.9% due to higher rebranding cost and provisions. Fortis is likely to buyback 31% stake in Agilus from price to earning investors in next couple of months and fund it via debt (debt to Ebitda max at 1.5 times).

It is also adding 400 brownfield beds in FY25 which may increase leverage. We trim Ebitda estimates by ~2% for FY25-26E.

Downgrade to 'Hold' with revised target price of Rs 490 (earlier Rs 500), valuing hospitals/diagnostics at 21 times/23 times FY26E enterprise value/Ebitda, respectively.

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