Motilal Oswal has initiated coverage on Fortis Healthcare with a Buy rating and a target price of ₹1,100, as reported by The Hindu BusinessLine. The brokerage values the company using a sum-of-the-parts (SoTP) methodology, applying different EV/EBITDA multiples to the hospital and diagnostics businesses to arrive at the target price.
According to the brokerage report, Fortis Healthcare has undergone a structural transformation since the change in promoter ownership to IHH Healthcare in FY19. The company has evolved from a stressed, governance challenged asset to a professionally managed, execution-led hospital platform. This transformation included balance sheet clean-up, exit of non-core assets and strengthening of governance practices.
As reported by The Hindu BusinessLine, Fortis Healthcare has demonstrated steady improvement in operating performance over the past decade. The company's financial metrics show significant growth from sales/EBITDA of ₹45 billion/₹2 billion and a loss of ₹1.5 billion in FY18 to sales/EBITDA/PAT of ₹9,000 crore/₹2,050 crore/₹1,080 crore over FY26E. During FY18-FY26, the company has achieved a 33 per cent CAGR in EBITDA through increased bed capacity and improved operational efficiency.
According to the brokerage report, Fortis Healthcare is valued using SoTP basis, valuing the hospital business at 30x 12M forward EV/EBITDA and the diagnostics business at 23x 12M forward EV/EBITDA. The valuation methodology factors in the robust transformation in the existing business, a brownfield strategy of bed additions driving faster EBITDA break-even, and subsequently driving better return ratios. The valuation is in line with peers MAXH and APHS to reflect the company's operational improvements.
As reported by The Hindu BusinessLine, the current market price of Fortis Healthcare stands at ₹928.10, with the brokerage's target price of ₹1,100 representing an upside potential. The company's transformation from a stressed asset to a professionally managed healthcare platform has been recognized by the brokerage's positive rating and target price assignment.
