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Fortis Healthcare: Inorganically Ambitious
Inorganic ambitions coupled
with asset light expansion to
drive growth priced in
Action/Valuation: Initiate with a NEUTRAL rating; TP of INR170
We initiate coverage with a NEUTRAL rating and a target price (TP) of
INR170. We use DCF to value Fortis at INR136/share, assuming a 20%
medium-term growth rate between FY15F and FY19F, a 7% terminal
growth rate, a cost of equity of 12.5% and a long-term RoE of 20%.
Incorporating the cash value at INR35/share, we arrive at a TP of INR170.
En route to capitalize on burgeoning opportunity
With 3,244 hospital beds (fully and partially owned through subsidiaries,
excluding associates and managed hospitals), Fortis is the amongst the
largest private sector hospitals in India, in our view. The company plans to
expand its hospital bed capacity by 58% over FY11-14.
Fuelling growth via acquisitions
Our analysis suggests that Fortis has created value via acquisitions
despite challenges such as the departure of Dr. Trehan from Escorts
Delhi. We believe the value creation is a testament to the strategic viability
of Fortis Healthcare’s inorganic strategy and capability of turning around
operations, and deriving cost and revenue synergies.
Asset light focus to drive equity returns
Fortis’ focus on the asset light model should enable it to expand its
presence while negating the hurdle of high capital intensity. Seven out of
the eight pipeline projects under development are under this model.
Catalysts
Execution delays, announcement of new acquisitions and expansions
through current / new facilities
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Fortis Healthcare: Inorganically Ambitious
Inorganic ambitions coupled
with asset light expansion to
drive growth priced in
Action/Valuation: Initiate with a NEUTRAL rating; TP of INR170
We initiate coverage with a NEUTRAL rating and a target price (TP) of
INR170. We use DCF to value Fortis at INR136/share, assuming a 20%
medium-term growth rate between FY15F and FY19F, a 7% terminal
growth rate, a cost of equity of 12.5% and a long-term RoE of 20%.
Incorporating the cash value at INR35/share, we arrive at a TP of INR170.
En route to capitalize on burgeoning opportunity
With 3,244 hospital beds (fully and partially owned through subsidiaries,
excluding associates and managed hospitals), Fortis is the amongst the
largest private sector hospitals in India, in our view. The company plans to
expand its hospital bed capacity by 58% over FY11-14.
Fuelling growth via acquisitions
Our analysis suggests that Fortis has created value via acquisitions
despite challenges such as the departure of Dr. Trehan from Escorts
Delhi. We believe the value creation is a testament to the strategic viability
of Fortis Healthcare’s inorganic strategy and capability of turning around
operations, and deriving cost and revenue synergies.
Asset light focus to drive equity returns
Fortis’ focus on the asset light model should enable it to expand its
presence while negating the hurdle of high capital intensity. Seven out of
the eight pipeline projects under development are under this model.
Catalysts
Execution delays, announcement of new acquisitions and expansions
through current / new facilities
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