Fortis Healthcare gains 3%; Nomura sees 20% upside, raises price target

Despite concerns over Fortis Healthcare’s EBITDA margin lagging peers, Nomura expects the healthcare firm to the catch up on operating metrics in the near-to-medium term

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Fortis Healthcare rose nearly 3 percent in the early trade on September 4, riding high on the company’s strong growth prospects.

Foreign brokerage firm Nomura, which retained its “buy” call, has raised its price target for Fortis Healthcare by more than 5 percent to Rs 388, implying an upside of 20 percent from the closing price on September 1.

Even as it took note of Fortis’ operating margin lagging those of its peers, Nomura is optimistic of a sustained improvement in the hospital operating metrics in the near-to-medium term. The firm sees three major levers that will aid a margin improvement in the near-to-medium term.

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These are the closure and turning around of low-margin/loss-making facilities, operating leverage through brownfield expansion and an improvement in specialty and case mix.

“We expect Fortis to benefit from the increasing volume of international patients and patients with insurance coverage,” the firm said.

Factoring in the positives, Nomura sees the EBITDA margin for the hospital segment to improve by 400 basis points to 19.6 percent by FY25, slightly lower than the company’s guidance of 20 percent. The margins could further rise to mid- to high-20 percent in the long run, the brokerage said.

The firm’s margin estimate factors in the divestment of the loss-making Arcot Road facility in FY24 and the acquisition of Medeor Hospital in Manesar.

The hospital chain announced its plan to acquire Medero Hospital for Rs 225 crore last week in a bid to expand its presence in key geographic clusters.

The acquisition cost involves the procurement of the Medeor Hospital, Manesar as well as all moveable assets housed within the facility.

The hospital can accommodate around 350 beds and Fortis plans to operationalise the facility in different stages spread over nine months.

At 10.08 am, Fortis Healthcare was trading 2.1 percent higher at Rs 331.10 on the National Stock Exchange.

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