Hold Fortis says JPMorgan

Initiate with Neutral, Price Target Rs160: While we like Fortis
Healthcare’s business model, its positioning in the Indian healthcare
delivery market and its strong balance sheet, we believe current
valuations at 15.9x FY12E EV/EBITDA are rich and do not leave much
upside for the stock from the current levels. We recommend investors
consider buying the stock closer to Rs130-Rs140 levels, closer to 12x-
13x FY12E EV/EBITDA.
• Second largest hospital chain with pan India presence: Fortis
operates a network of 39 hospitals across India with 2973 operational
hospital beds. Its strong brand image and operating parameters make it
well positioned to benefit from fast growing healthcare delivery market
in India, estimated to grow at 12% CAGR over the next 5 years (Source:
Crisil).
• Growth to accelerate rapidly backed by strong balance sheet:
Integration of Wockhardt Hospitals (acquired in 4QFY10) and addition
of 2100 beds over the next 3-years is likely to drive strong pick up in
growth. We forecast revenue CAGR of 39% and earnings CAGR of
47% over FY10-FY13E. In addition, recent stake sale of its holding in
Parkway have enhanced the cash position on its balance sheet, opening
up possibilities of potential large ticket acquisitions.
• Price target, valuation, key risks: Our Mar-11 price target of Rs160 is
based on 15x FY12E EV/EBITDA, in-line with Asian peer group
valuations. Our Mar-11 DCF based fair price for Fortis is Rs155 per
share. Key downside risks to our rating and price target are expensive
acquisitions, delays or cost overruns in expansion plans and constraints
on availability of skilled talent pool. Key upside risks to our price target
are an earnings accretive acquisition and earlier than expected breakeven
for new hospitals.