Fortis Healthcare Ltd Stock Research Report

Leading the Charge: Fortis Healthcare Driving Operational Excellence and Margin Expansion….

We initiate coverage of Fortis Healthcare Ltd (Fortis) with a BUY recommendation and TP of 860/share with an upside potential of 20% from the CMP. Fortis Healthcare has established itself as a leader in complex medical procedures, outperforming competitors like Max Healthcare and Medanta in cardiac surgeries, radiation therapies, and robotic surgeries, which drive substantial revenue. It is the largest provider of oncology services in India, with oncology revenue projected to reach Rs 1,600 Cr by FY27E. Fortis also leads in the cardiac healthcare market, with sales expected to grow from Rs 1,010 Cr in FY24 to Rs 1,300–1,400 Cr by FY27E.

The company plans to add 2,000 beds through brownfield expansion, increasing capacity by 45% and stabilizing occupancy rates at 68% with an ARPOB of Rs 70,000 by FY27E.Its diagnostic arm, Agilus, contributes 20% of revenue, with EBITDA margins expected to improve to 20% by FY26E. Under IHH management, Fortis has achieved significant financial growth, with PAT projected to more than double from Rs 645 Cr in FY24 to Rs 1,421 Cr by FY27E. This will be supported by cost optimization, strategic divestments, and rising health insurance penetration.

Investment Thesis:

Leadership in key therapies: Fortis Healthcare has emerged as a leader in complex medical procedures, performing 60,600 cardiac surgeries, 11,100 radiation therapies, and 3,600 robotic surgeries, placing it among the top healthcare institutions in India. In comparison, Max Healthcare conducts fewer cardiac procedures and radiation therapies, while Medanta performs significantly fewer surgeries.
The high-cost procedures at Fortis, ranging from Rs 2- 5 Lc for surgeries and Rs 2-3 Lc for radiation sessions, contribute greatly to its revenue. This strong performance bolsters Fortis’s financial position and its ARPOB, positioning it as one of the leaders in India’s healthcare market.

The Indian oncology market, forecast to grow at 18% CAGR to $1.49 Bn by 2028, presents a significant opportunity for Fortis, which is the largest provider of oncology services. Fortis conducted 11,000 radiation therapy sessions in FY24, generating Rs 813 Cr, with oncology revenue expected to reach Rs 1,600 Cr by FY27E. In the growing cardiac healthcare market, Fortis leads with Rs 1,010 Cr in sales, surpassing Max Healthcare (Rs 660 Cr) and Medanta (Rs 720 Cr).

The cardiac market, valued at Rs 40,000 Cr, is projected to grow 10% annually, and Fortis’s comprehensive care, including 12 Cath Labs and India’s first AICD implant, places it at the forefront. The cardiac segment is expected to generate Rs 1,300-1,400 Cr by FY27E. Fortis’s success is driven by its skilled clinical doctors, whose expertise spans a wide range of specialties, ensuring continued growth and innovation across its medical fields.

Keys Expansion and Steady Momentum by Insurance:

Fortis Healthcare’s expansion plans, with the addition of 2,000 beds over the next 4 years, will push the company’s total capacity to exceed 6,000 beds, enhancing its capacity by ~45%. This growth will be driven by brownfield expansion, which typically offers an earlier break-even period compared to greenfield expansion. Fortis Healthcare has successfully improved its occupancy rate from 55% in FY21 to 65% in FY24, demonstrating effective utilization of its capacity. This has been followed by an ARPOB growth at 8.7% CAGR from FY20-FY24 to Rs 61,000 in FY24. Additionally, Fortis’s FMRI boasts an ARPOB of over Rs 1 Lc, the highest in the industry.

It is also expected that Fortis will stabilize its overall occupancy rate at ~68% and ARPOB at Rs 70,000 by FY27E. Even with its planned expansion, this growth will be driven by a 4-5% price revision and balance with the rise in volumes as insurance penetration improves. We have observed new healthcare projects in Delhi NCR that are expected to generate incremental annual revenue of Rs 3,500 Cr by FY27. These projects will aim to serve 6-7 Lc new patients each year. Additionally, the rising growth of the health insurance segment at an annual rate of 18% is expected to contribute an extra Rs 15,000 Cr in premiums and extend coverage to 33 Lc more individuals.

Fortis Healthcare Ltd Stock Research Report – Diagnostic Arm Agilus’s Recovery:

Fortis Diagnostics, rebranded as Agilus in May’23 (formerly SRL Diagnostics), is the second-largest diagnostic business by revenue, following Dr. Lal Path Labs. In FY24, it contributed 20% to the company’s revenue and 17% to EBITDA. Rebranding and promotional expenses are expected to cease post-FY25, which will support EBITDA margin expansion. The segment’s EBITDA margins are projected to improve to 19% in FY25E and 20% in FY26E, with revenue growth estimated at 11% in FY25E and 11.2% in FY26E

Fortis Healthcare Ltd Stock Research Report: Improving Margins

Fortis has significantly improved its EBITDA under IHH management, reporting Rs 1,268 Cr (18.4%) in FY24, up from Rs 225 Cr (5%) in FY19. The company aims to increase EBITDA margins by 200bps YoY and we expect a 400bps improvement over FY24-FY27E through brownfield expansion, rebranding Agilus Diagnostics, divesting loss-making units, and cost optimization. The top 10 hospitals generate a major share of revenue and adding 2,000 new brownfield beds will further boost margins. Divesting loss-making assets, such as the Chennai cluster, and legal cost optimization could lift margins by 50-60 basis points. Additionally, Fortis’s 8 facilities reported EBITDA margins over 20% in FY24, up from 6% in FY23, with expectations to exceed 12% by FY27E. PAT was Rs 645 Cr in FY24 and is expected to reach Rs 1,421 Cr by FY27E. Fortis reported a 9% ROIC in FY24 and expects 19% by FY27E.

Valuation & Recommendation:

Fortis presents a strong investment case, driven by impressive revenue growth projections and solid financial performance. The expected improvement in occupancies, coupled with rising ARPOB, along with the company’s strategic brownfield expansions on major facilities, is set to significantly enhance profitability. Fortis’s leadership in key therapies such as Cardiac and Oncology, coupled with rising insurance penetration in India, is expected to sustain strong demand for its healthcare services.
We initiate coverage on the stock with a BUY Rating and a TP of 860/share based on a multiple of 27x EV/EBITDA for FY27E. The TP implies an upside of 20% from the CMP