16 Nov , 2021 By : Kanchan Joshi
Fortis reported a double-digit beat of Jefferies' Q2FY22 EBITDA estimate which was at the top of consensus. The hospitals business met expectations on both ARPOB and occupancy. It expects that coming quarters for the hospital are likely to be more promising with increasing occupancy rates and new bed additions.
Jefferies has upgraded its rating to Buy from Hold on Fortis Healthcare and has also raised its target price on the stock to Rs326 per share from Rs249 apiece earlier on increasing occupancy & capacity indicating strong growth and robust hospital outlook triggers its upgrade.
“We believe Fortis can deliver a 17% hospitals EBITDA jump in FY23 on increasing bed count & occupancy rates and healthy ARPOBs. Near-term growth prospects remain robust as over 1,000 beds become operational in the next 4 years and additions are evenly spread out over the coming years. Diagnostics presents additional upside potential which is not yet fully built in to our models," the note stated.
Fortis' diagnostic volume remains volatile and continues to surprise positively. Lower Covid test volume reduced average price per test Q1 but a 9% increase in total test volume led to a 27.6% margin. Jefferies said it awaits steady state test volumes as management EBITDA guidance points towards slightly lower volume than current levels, though, believes a higher test volume base could provide further upside to its estimates.
During the earnings call, management guided towards an increasing occupancy rate in coming quarters. Fortis plans to add about 200 new beds by the end of this fiscal year and another 200-300 beds each year thereafter. Those at Jefferies also expect hospital profitability to sustain as higher occupancy brings operational leverage benefits.
As per BSE shareholding pattern, Indian veteran investor Rakesh Jhunjhunwala holds 4.23% stake in Fortis Healthcare Ltd as of September 2021.
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