FORTIS - Fortis Healthcare Ltd Share Price

Outlook by Management:
Fortis Healthcare's management expressed a positive outlook, driven by robust hospital performance and strategic initiatives. Key highlights include:

1. Hospital Business Growth: Expect sustained revenue growth (14-15% YoY) and margin expansion (targeting 25% EBITDA long-term), supported by brownfield bed additions (350-400 beds annually), specialty focus (Oncology, Neurosciences, Cardiac), and digital revenue growth (29.9% contribution). ARPOB growth (~5-6% annually) will be driven by case mix and price revisions.
2. Diagnostics (Agilus): Anticipate margin normalization (21-22% EBITDA) post-rebranding costs tapering by FY25-end. Growth expected to align with industry (8-10%) by Q2/Q3 FY26, driven by preventive care, specialized testing, and network expansion (4,126+ touchpoints).
3. Expansion Strategy: Focus on cluster-based brownfield expansions (e.g., Manesar breakeven by Q1 FY26) and opportunistic M&A/land acquisitions. Portfolio rationalization continues (e.g., divesting low-margin assets like Richmond Road).
4. Financial Strength: Healthy balance sheet (net debt/EBITDA: 0.41x) supports growth investments. Raised INR 1,550cr via NCDs to consolidate Agilus stake (89.2% ownership).
5. Operational Efficiency: 67% occupancy (up 300 bps YoY), 11 facilities exceeding 20% EBITDA margins. Emphasis on robotics, medical tourism (+17% YoY), and cost optimization.

Major Points:

• Hospital revenue: INR 1,623cr (Q3, +16.8% YoY); Diagnostics: INR 342cr (+3.5% YoY).
• Consolidated EBITDA margin: 19.4% (32% YoY growth).
• Divested non-core assets (Richmond Road) to boost profitability.
• Diagnostics' preventive care revenue up 17% (10% of total).
• Digital channels contributed 29.9% to hospital revenue (+36% YoY).
• Net debt: INR 644cr (Dec'24); capex ~INR 900cr annually (brownfield focus).

Question 1: First, on the Manesar greenfield expansion, could you give us some color on what the losses were in this quarter? And how should we think about ramp-up of the facility? Any guidance on when the facility can breakeven?
Answer: The Manesar facility, operational since the start of Q3 FY25, is generating ~INR 5 crores/month and targets breakeven at ~INR 9 crores/month by Q1 FY26. It opened 53 beds initially, with another 50 beds planned by March 2025.

Question 2: My second question is on the Richmond Road facility. I understand this is very small. So is it fair to assume that there isn't too much cost benefit or margin savings that we will see from the asset being divested?
Answer: The divestiture of Richmond Road (INR 8 crore EBITDA loss annually in FY24) will eliminate losses but offers minimal margin improvement due to its small scale.

Question 3: On Agilus, if I think about growth momentum and our target of helping this business grow in line with the industry, do you think that is possible in fiscal '26?
Answer: Agilus expects to align with industry growth (~10%) by Q2/Q3 FY26, driven by core revenue improvement, preventive care focus, and reduced rebranding costs (INR 50 crore spent in FY25; tapering in Q4).

Question 4: Just want to understand what are some of the drivers of ARPOB growth? Is it mix or pricing?
Answer: ARPOB growth (9.9% YoY) is driven by case mix (62% from high-revenue specialties like Oncology, Neurosciences) and minor price revisions (~1.5%). Robotic surgeries (+77%) and daycare contributed.

Question 5: On the hospitals in the 9-month data that are below 10% EBITDA margin, what are the other 3? Could divestments occur?
Answer: FEHI, Jaipur, and Vashi are sub-10% margin hospitals. FEHI is improving post-leadership changes; Jaipur/Vashi face structural challenges but no divestment plans yet.

Question 6: On competitive intensity and talent retention, are you seeing a war for clinicians?
Answer: Talent retention is manageable, with brownfield expansions requiring minimal senior clinician hiring. Supply has improved, though smaller cities face acute shortages.

Question 7: Why is Fortis less aggressive in M&A compared to peers?
Answer: Fortis prioritizes value-accretive, cluster-aligned acquisitions/land deals and is actively evaluating opportunities but avoids overpaying.

Question 8: How long will Agilus' rebranding expenses continue?
Answer: Rebranding costs (INR 50 crore in FY25) will taper by Q4 FY25, with minimal spillover to Q1 FY26. No major expenses planned for FY26.

Question 9: Why was the consolidated tax rate low at 9%?
Answer: A deferred tax asset (INR 27 crore) was recognized for a subsidiary's unabsorbed losses. The tax rate normalizes to ~25% from Q4 onward.

Question 10: Update on the Fortis brand acquisition and legal cases.
Answer: Fortis awaits court confirmation of its bid for the brand amid objections. Legal costs remain elevated pending High Court rulings on forensic audits.

Question 11: What is the medium-term growth and margin guidance?
Answer: Hospital revenue targets ~14% growth (5-6% ARPOB, bed expansion). Margins aim for 20.5% in FY25, with a long-term 25% target via occupancy improvements and cost efficiencies.

Question 12: Capex guidance?
Answer: Annual capex is ~INR 900 crore (INR 600 crore for expansion, INR 300 crore maintenance).

Question 13: Agilus' growth drivers post-rebranding?
Answer: Growth (~8-10% by Q2 FY26) will rely on volume recovery, specialized/preventive testing, and stable pricing (last hike in Feb 2024).