Outperform on Fortis Health, target Rs 115

Updated: Aug 15 2013, 10:04am hrs

Fortis Healthcare reported consolidated revenue of R1,520 crore, above our estimate. However, Ebitda margin at 4.9%, with reported loss at R220 crore, was below our estimate due to higher start-up costs of R22 crore, forex and other one-time charges of R100 crore.

On the back of continued deleveraging efforts, net debt/equity has come down to 0.7x from 1.0x at the end of Q4FY13. We maintain our outperform rating with a target price of R115.

The hospital business revenue grew by 23% y-o-y to R650 crore. However, Ebitda margin loss of approximately 1% is attributable to higher start-up costs of approximately R22 crore, higher business trust costs (with approximately 80% fixed costs) and seasonality factors. Margins are expected to improve going forward on the back of higher operating leverage and maturing new hospitals.

Super Religare Laboratories (SRL) margins went up to approximately 16.5% (vs 15% & 10.3% in Q4FY13 and Q3FY13) primarily due to cost efficiency measures. International business accounts for approximately 30% of total revenue. In Q1, revenues were at R700 crore (down 5% y-o-y) with Ebitda margin of 8% (down 200 bps q-o-q).

Divesture of Dental Corporation (DC) completed in May 2013 and financials include only two months of DC. Excluding DC, international business revenue came at R370 crore (up 11.5%) with Ebitda margin of 3.8% (down 160 bps). The improvement in balance sheet provides comfort.