Q1 profit down 69%, but D-St analysts see 20% upside in this Rakesh Jhunjhunwala bet

NEW DELHI: Fortis Healthcare, a Rakesh Jhunjhunwala portfolio stock, saw a 69 per cent year-on-year (YoY) drop in net profit in June quarter on a modest rise in sales, but the numbers were inline with analyst estimates.

Post its quarterly numbers, Prabhudas Lilladher finds the stock worth Rs 330. Elara and Edelweiss Securities have targets of Rs 325 each on the stock. Nomura India sees it at Rs 319 while ICICI Securities finds it worth Rs 299. These targets suggest 10-21 per cent potential upside. The scrip has an average price target of Rs 327, as per Trendlyne, suggesting a 20 per cent-plus upside potential on the counter.

The rise in the number of international patients and better specialty mix would drive growth and margin in the hospitals business for the next two quarters, Elara said. "Although the non-Covid business is doing well, high base of Covid-linked sales last year may continue to impact growth in diagnostics in the near term, it said while raising FY 23 Ebitda estimate by 2 per cent and FY24's by 6 per cent to factor in better traction in hospitals.

Fortis' consolidated profit for the quarter was down 69 per cent YoY at Rs 134 crore while its revenues were up 5.53 per cent at Rs 1,488 crore. Ebitda fell to Rs 271.80 crore from Rs 283.10 crore YoY, with YoY margin falling to 18.3 per cent from 20.1 per cent YoY.

Nomura India said revenue and Ebitda were in line with its estimates, while PAT was ahead on account of other income related to forex gains.

The hospital’s revenue, which is 80 per cent of consolidated revenue, recorded a strong rebound, with a 18 per cent YoY growth, led by higher occupancy rates and an improved revenue mix. Surgical volumes and ARPOB (average revenue per occupied bed) were at historical highs driven by pent-up demand, Nomura India said.

"Contribution of Covid revenue was 6 per cent in Q1 against 22 per cent in Q4 and 45 per cent in the year-ago quarter. Non-Covid revenue of the diagnostics business grew 24 per cent YoY and Ebitda margin for the business was at 19.6 per cent, below peers’. However, the company continues to aggressively add to its network of collection centres which we think should drive volumes going ahead," Nomura said.

Jhunjhunwala owned 31,950,000 shares or 4.23 per cent stake in the company as of June 30. He had been staying status quo on his Fortis holding since September quarter of 2021. The Big Bull's holding in the stock is worth Rs 850 crore as of today.

Steadily improving occupancy and specialty mix validate Fortis’s execution capabilities, said Edelweiss Securities, while noting that nine of its hospitals operating at less than 15 per cent margin, implying room for improvement.

The brokerage said revenue and Ebitda for the quarter in fact outperformed its expectations, led by a strong hospital business (up 15 per cent QoQ). "Fortis retains enough levers to grow in double-digits: occupancy gradually inching towards 70 per cent (pre-covid) occupancy; steadily improving surgical mix; nine hospitals operating at sub-par margins that offer room for a turnaround; and brownfield expansion - 1,500 beds over next four years funded by internal accruals," it said.

SRL is reeling under intense competitive pressure, which is likely to challenge growth in the near term, Edelweiss said, adding that an aggressive network expansion and investment in high-end specialty would mitigate pressures over the long term.

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