Fortis Healthcare- Rapid expansion, but fully valued:: UBS

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UBS Investment Research
Fortis Healthcare
Rapid expansion, but fully valued

�� Initiate coverage with a Neutral rating and Rs170.00 price target
While we are optimistic about Fortis Healthcare’s (FOHE) opportunities ahead, as
well as its track record of rapid organic and inorganic expansion and its ability to
improve the operating performance of its acquired hospitals, we believe the stock
is fully valued. We initiate coverage of FOHE with a Neutral rating.


�� Opportunistic expansion and strong balance sheet should drive growth
FOHE has been opportunistic about increasing its bed capacity through organic
and inorganic growth, and through management contracts. It acquired Wockhardt
Hospitals (WHL) in December 2009 for Rs9.1bn. At the time of the acquisition,
WHL had 856 beds in operation and 534 beds in hospitals under construction in
Bangalore and Kolkata.

�� Group entity will expand internationally; lower risk of acquisitions
According to FOHE, Fortis Global, which is owned by FOHE’s majority owners,
will engage in international expansion and acquisitions. This should reduce the risk
of FOHE making expensive international acquisitions. Fortis Global acquired
Hong Kong-based Quality Healthcare for Rs8.82bn on 10 October 2010.

�� Valuation
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. Our price target implies 55x
FY12E PE and 25x FY12E EV/EBITDA. These multiples reflect our 43% profit
after tax (PAT) CAGR and 28% EBITDA CAGR forecasts for FY12-15. Our
FY11/12/13 EPS estimates are Rs1.75/3.09/4.94.