Fortis Healthcare, a Rekha Rakesh Jhunjhunwala-backed company, reported a 59 per cent rise in March quarter profit at Rs 138 crore, still failed to meet Street estimates on Ebitda front. Analysts said revenue for the quarter was largely in line but the Ebitda miss was to the tune of 12 per cent over the consensus estimate, thanks to higher CSR cost and a Rs 6.5 crore provision in SRL. A couple of brokerages have a price targets of Rs 325-360, which suggest 13-25 per cent potential upside for the stock over Thursday's intraday price of Rs 287.20 on BSE.
Rekha Rakesh Jhunjhunwala held 3,36,52,108 shares or 4.46 per cent stake in the company as on March 31, which were worth Rs 966 crore at the prevailing price.
"Lower than estimated revenue growth and Ebitda margin in the diagnostic segment led the miss versus our estimates. Reported PAT was supported by one-off gain of Rs 10.5 crore related to the reversal of the impairment of an associate company. Excluding the one-off, PAT missed our estimate by 8 per cent," Nomura said while suggesting a target of Rs 325 on the stock.
For the hospital business, Fortis Healthcare expects a 11-12 per cent revenue growth in FY24. This will be driven by 6-7 per cent increase in average revenue per occupied bed (ARPOB) and an increase in occupancy to 70 per cent from current 67 per cent. On a high base, the growth in ARPOB is likely to slow down, as per the management.
In the diagnostic business, unlike peers, the company has not undertaken any price increase in the diagnostic
business so far. The company shall evaluate possible price increases in its portfolio in mid-FY24. The company expects the industry to grow at 10 per cent and sees SRL delivering 1-2 per cent higher growth.
Elara Securities said margin took a hit from one-off items such as provision for government contracts, one-time legal expenses, and clubbing of CSR expenses. It noted that the management has set a target for a 300 bps margin improvement in FY24 in the hospitals segment.
"We assume a mere 190 bps margin improvement in the hospitals space in FY24E vs guidance of 300 bps improvement. We build in flat margin for the diagnostics business. If management meets its margin target, there could be upside to our numbers. The stock trades at 33 times FY24E core earnings. Our price target of Rs 349 is 37 times FY25E core EPS of Rs 9.4. In our view, higher valuation is justified, given addition of fresh bed capacity in FY25, which is likely to adversely affect FY25E EPS, but will likely add to growth in the years ahead," it said.
Prabhudas Lilladher has cut its target on the stock to Rs 330 from Rs 360. It said resolution of legal issues and monetisation of non-profitable assets would be a key additional trigger for re-rating.
"We expect revenue CAGR of 14 per cent from FY23-FY25E as the higher occupancy levels in hospitals will be supported by 4-5 per cent price hike leading to increased ARPOB. Around 1,500 beds would be added in the next 4-5 financial years. The occupancy to improve from 68 per cent in FY23 to 70-75 per cent by FY25E. The SRL diagnostics business is showing initial signs of stabilisation in the aftermath of the covid surge and the challenging industry environment. On overall basis, we are positive about the growth prospects of both Hospitals and SRL," said SMIFS with a price target of Rs 360.
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