FORTIS HEALTHCARE LIMITED
Know the Company
Fortis Healthcare Limited (FORTIS) is a subsidiary of IHH Healthcare Berhad, which holds 31.1% stake in the company. Malaysia headquartered IHH Healthcare Berhad is a prominent healthcare provider with strong presence in Singapore, Malaysia, India, Greater China, Turkey, Europe, and Southeast Asia. Fortis is a leading integrated healthcare services organizations in India with 28 healthcare facilities, over 4,500 beds capacity and over 400 diagnostics centers (including JVs). Fortis has presence in India, the United Arab Emirates (UAE), Nepal & Sri Lanka. The company offers a comprehensive range of integrated healthcare services, including Hospital and Healthcare, Intermediate Medical Unit, Labs, and other related services.
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Company History
Fortis Healthcare Limited was started with its first healthcare facility at Mohali in Punjab in 2001 by Mr Malvinder Mohan Singh and Mr Shivinder Mohan Singh of Ranbaxy laboratories. In 2018, shareholding of the Singh brothers came down to less than 1% after the Hon’ble Supreme Court allowed lenders to invoke the pledge against shares of Fortis held as security. Thereafter, IHH became the new promoter, having infused around Rs 4,000 crore to fresh issuance of around 31.1% stake in the company. The board has given approval for the change of names, brands and logos for Fortis and its diagnostic subsidiary – SRL Diagnostic – after the license agreements for the diagnostic subsidiary expired in 2021. Consequently, the diagnostics subsidiary has been rebranded as Agilus Diagnostics Ltd since May 2023. The proposal to alter the name, brand, and logo of Fortis healthcare is presently under consideration, pending various deliberations and regulatory approvals.
Key Medical Specialties
Fortis specializes in key medical fields including Oncology, Cardiac Sciences, Neurosciences, Gastroenterology, Orthopedics, and Renal Sciences. The hospital is also well known for its state-of-the-art medical infrastructure and the incorporation of new clinical teams.
Major Strengths
Strategic Expansions: In alignment with its network expansion strategy, Fortis plans to pursue organic growth through brownfield expansion as well as inorganic growth. The primary focus is on strengthening its presence in key geographic clusters, mainly NCR, Mumbai, Bengaluru, and Kolkata. As part of this strategy In August 2023, Fortis signed definitive agreements with Medeor Hospital Limited (MHL) and VPS Health Care Private Limited for the acquisition of a multi-specialty hospital located in Manesar, Gurgaon, Haryana (Medeor Hospital Manesar). These acquisitions finalized for a lump sum consideration of Rs 225 crore. Medeor Hospital Manesar has a potential bed capacity of approximately 350 beds and can be operationalized in a phased manner within around 9 months.
In September 2023, the board of the company approved a proposal to acquire Artistery Properties, based in Kolkata, at an enterprise value of Rs 32 crore. The acquisition involves a 99.9% stake and will be executed through a complete share purchase agreement.
Brownfield Expansion: In the current financial year, the company targets to increase its bed capacity by about 200 beds through brownfield expansion. This includes adding more beds to larger facilities like Mulund, Anandpur, and Mohali. Additionally, a new facility with 50 beds is expected to start in Ludhiana. Fortis also continue to working on expanding other major facilities like FMRI, Noida, Shalimar Bagh, Faridabad, and FHKI, which all are at different project stages. The overall expansion plan for FY 24-25 and beyond aims to add a total of around 1,400 beds in Phase I and potentially another 600 beds in Phase II, over the next few years. After completion of these expansions, it would increase the company’s current operational bed capacity by 50% to approximately 6,000 beds.
Bright Industry Outlook
India’s healthcare industry is set to grow significantly, driven by factors including an increasing aged population, growth in lifestyle-related diseases, improved affordability for better access to quality medical care, and a higher adoption of medical insurance. The Union budget for FY2024 sets aside Rs 88,956 Crores for healthcare spending, marking a 2.7% increase from last year. Since 2018, the Ayushman Bharat PM-JAY program has been advancing. It’s a scheme funded jointly by the central government and states, also contributing to the healthcare industry’s significant growth.
India’s healthcare spending is presently around 3% of its GDP, which is much lower than compared to the 15% to 19% range seen in developed countries. It also shows a significant growth in the industry from the present levels.
Medical tourism also expected to be a big reason for the growth of India’s healthcare sector. This is because of India provides medical services at a much lower cost than many other countries with world class treatment facilities. The Indian government is encouraging medical tourism by offering e-medical visas to people from 156 countries.
The government wants to spend more money on healthcare, aiming for 2.5% of the country’s total earnings by 2025. This is likely to result in the increase in number of medical professionals.
The diagnostics industry is set to grow for a various reason. Importantly, due to higher disposable income, the middle class can afford better healthcare. Also, with the population increasing and diseases changing, there’s a greater need for medical tests.
Financials
Fortis Healthcare recorded a 15.7% decrease in net profit, down to Rs 184 crore for Q2FY24 compared to Rs 218 crore in the same period last year Revenue for this quarter reported at Rs 1,770 crore, showing a 10% increase from Rs 1,607 crore in the previous year. The growth in revenue was mainly due to better performance in average revenue per operating bed and increased occupied beds.
Strong Balance Sheet
As of March 31, 2023, Fortis carries a total debt (including lease liabilities) of Rs 926 crore, marking a decrease from Rs 1,255 crore in the previous fiscal year. The ratio of gross debt (including leases) to EBITDA now stands at 0.8 times, showing an improvement from the previous year figure of 1.2 times. The company has an annual capital expenditure plan of Rs 1,000 crore, which is expected to be financed through a combination of internal earnings and borrowing. This, coupled with consistent repayment of term loans, will maintain its balance sheet robust as well as strong debt metrics.
Subsidiary IPO
Fortis Healthcare’s subsidiary, Agilus Diagnostics (formerly known as SRL Diagnostics), submitted a draft red-herring prospectus (DRHP) to the Securities and Exchange Board of India (SEBI) for an initial public offering in last October. Agilus Diagnostics is among the largest diagnostic service providers in India, having the highest number of laboratories and ranking second in terms of revenue from operations for the fiscal year ending March 31, as per a Crisil report. However, as per the draft DRHP, the IPO consists entirely OFS of 1.42 crore equity shares held by International Finance Corp, NYLIM Jacob Balls India Fund III LLC, and Resurgence PE Investments Ltd.
Risk Factors
Hospitals Industry is a highly capital-intensive industry, but, at the same time it remains a highly labor-intensive sector too. Therefore, it is crucial for this industry to consistently invest in both capital and labor to keep up with advancements in medical technologies and to sustenance facilities to meet the evolving needs of patient care.
In 2017, the government of India implemented price caps for certain medical treatments, such as cardiac stents and knee implants. Any further tightening of pricing, if happens in the future, could negatively impact the profitability of private healthcare providers, which is a cause for concern. The diagnostics industry in India also facing certain risks, including stiff competition from the unorganized market. This is mainly because the industry is highly fragmented, with low entry barriers and an asset-light model in nature.
Fortis and IHH entered into their agreement in August 2018 to buy a controlling stake. Subsequently, in December 2018, after the Japanese Daiichi (who took over the Ranbaxy Lab, promoted by Singh brothers) challenge the Supreme Court for stayed the IIH open offer. IHH Healthcare is seeking 20 billion yen in damages from Daiichi Sankyo, alleging interference in the Fortis Healthcare deal. The legal dispute that originated in 2018 is still ongoing. Nevertheless, the decision of the Apex court is closely under watch.
Sector: Healthcare
Market Price: Rs. 425.50 as on today
FV: ₹10/-
Stock Name: Fortis Healthcare Ltd
BSE Code: 532843, NSE Code: FORTIS
Market Cap.: Rs 31633 Cr
Book Value: Rs. 101
Segment: Hospital
Incorporation: 1996
Headquarters: Gurgaon, India
