Visit http://indiaer.blogspot.com/ for complete details Fortis Healthcare Limited: Well Positioned Hospital Play; Initiate at OW
Bullish on Fortis’ ability to execute aggressive
expansion plans: A combination of significant bed
additions over F11-13, strongly performing mature
hospitals, and the ramp-up of the Wockhardt acquisition
drives our Overweight rating. We arrive at our price
target of Rs205 using a DCF analysis, implying 23%
upside. We estimate net cash of Rs10.2bn (gross cash
of Rs20bn) on the balance sheet at the end of F11.
Dominant player in India: Since starting operations in
2001, Fortis has become India’s second-largest
healthcare delivery company with 23 hospitals and
2,973 beds under management and nine hospitals
(2,809 beds) at various stages of construction. Fortis
has positioned itself as a high-quality service provider
with a focus on higher-margin/high-growth superspecialty
areas including cardiac care (among the
leaders in India), neuro-sciences, oncology, orthopedics,
and renal care.
We estimate 42% EBIDTA CAGR in F2010-13, mainly
driven by: 1) a ~98% increase in owned beds over
F11-13; 2) the robust performance of core assets; and 3)
gradual improvement in the operational parameters of
Wockhardt hospitals. Fortis has a strong pipeline of
greenfield projects (1,375 beds), brownfield projects /
expansion at Wockhardt (686 beds), and expansion of
existing hospitals (~83 beds) during F11-13. The stock
is trading at 19.6x/14.4x EV/EBIDTA and 37.8x/27x P/E
on our F12/13 estimates (three-year F11 PEG of 1.3x),
which should be seen in the context of high and
continued growth (until F17).
Play on favorable macro outlook: Longer term, we
expect increases in both life expectancy and lifestyle
ailments, coupled with growing affordability and
healthcare insurance penetration, to drive demand for
quality healthcare delivery in India. Execution and
litigation are the key downside risks, in our view.
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