IDFC Securities
Fortis Healthcare (Outperformer)
CMP: ₹159.85
Target: ₹197
Post a prolonged process of cleaning up its balance sheet through divestment of the international assets, Fortis Healthcare Ltd (FHL) is now a nearly debt free and domestic focussed franchise. Post a strong operating performance in H1FY17, a dip in last 2-3 quarters has been disappointing but we remain hopeful on a turnaround.
Management’s commentary adds to the comfort. FHL’s decision to buy 51 per cent stake in FMRI and SB hospitals has boosted hospital services EBITDA. However, it has also sharply increased FHL’s debt burden yet again though management has guided to reducing debt through some non-core sales. The same needs to be seen. Given the maturity of FHL’s network, at 15-16 per cent hospital EBITDAC and about 20 per cent diagnostic EBITDA, there is significant scope to expand profitability.
Key positives: Strong healthcare services growth guidance; other income
Key negatives: Lower healthcare services EBITDAC.