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Analyst Research Report Snapshot


Fortis Healthcare (FORH) - Co. Update - Dated - June 13, 2014




Axis Capital Limited


13 Jun 2014





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We interacted with the management of Fortis (Bloomberg: FORH IN). Key takeaways:  Profitability of India Hospital business (80% of revenue) to improve from FY15. Management is confident of 15% EBITDAC margin (11% in FY14) as beds mature and service fee plateaus  SRL Diagnostics (45% of revenue) to continue its profitable growth with 20% revenue CAGR over FY14-16E. EBITDA margin to improve ~200 bps to 19% over the same period, as labs mature Q4 performance: The company reported a loss of Rs 733 mn due to initial set-up costs, higher service fee towards RHT (business trust), and loss in its international business. Higher revenue visibility from FY15: Revenue from Indian business (hospitals and diagnostics) is ~95% of total revenue vs. 50% in FY13. We expect Fortis to benefit from rising discretionary healthcare spend in the country led by changing demographics, rising income levels/awareness, changing lifestyles resulting in a better case mix, rising insurance penetration, and ramp up of inadequate bed infrastructure (> 1 bed/1,000 population). With Fortis now de-leveraged, we expect lower interest outgo coupled with higher number of maturing beds and improving margin profile at SRL to drive turnaround in FY15E. Maintain BUY with revised DCF-based TP of Rs 138 (Rs 94 earlier); 11% upside from CMP of Rs 124. Regards, Kashyap Pujara (Executive Director – Midcaps) kashyap.pujara@axiscap.in; 91 22 4325 1146 Farzan Madon (VP – Midcaps) farzan.madon@axiscap.in; 91 22 4325 1131

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