crisil research ier report fortis healthcare

Fortis Healthcare (India) Ltd

Enhancing investment decisions

Initiating coverage

© CRISIL Limited. All Rights Reserved.

Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process –

Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental

grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The

valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to

grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

Assessment CRISIL Valuation Grade

Assessment

5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)

4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)

3/5 Good fundamentals 3/5 Align (+-10% from CMP)

2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)

1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest

that can bias the grading recommendation of the company. Disclaimer: This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL

(Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for

any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without

any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes

investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold

any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this

Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be

reproduced or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or

published or copied in whole or in part, for any purpose.

© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 1

July 15, 2011 Fair Value Rs 185 CMP Rs 167

Fundamental Grade 4/5 (Strong fundamentals)

Valuation Grade 5/5 (CMP has strong upside)

Industry Information technology

Polaris Software Limited

Business momentum remains intact

Fundamental Grade 4/5 (Superior fundamentals)

Valuation Grade 4/5 (CMP has upside)

Industry Healthcare Providers & Services

Fortis Healthcare (India) Ltd Forging ahead

Fortis Healthcare (India) Ltd (Fortis), one of the leading healthcare service providers in India, is suitably placed to benefit from strong growth in the healthcare industry. While aggressive bed additions via the inorganic route led to strong growth in the past, greenfield projects and asset-light model will ensure future growth with enhanced return ratios. Synergy benefits from the recent acquisition of a diagnostic business and outstanding litigations are key monitorables. We assign Fortis a fundamental grade of 4/5, indicating that its fundamentals are superior relative to other listed securities in India.

Journey through the inorganic route ensured growth in the past

Fortis has aggressively followed the inorganic route to increase the bed count from 300 in FY01 to 4,800 installed beds now; 60% through acquisitions. Given the timeline of about three years to set up a hospital, we believe acquisitions have enabled Fortis get a head start on others and register faster growth.

Greenfield path with focus on asset-light model to aid future growth

Fortis plans to add ~1,400 beds over the next two-three years through greenfield projects. Considering rising real estate costs, particularly in metros/ tier I cities, Fortis has adopted the asset-light model for expansion. Of the eight upcoming hospitals, seven are on a lease basis; this will help Fortis grow at a rapid pace and enhance return ratios.

Key monitorables: SRL acquisition and pending litigations

1) Fortis recently acquired 71.4% stake in Super Religare Laboratories (SRL) for Rs 8,030 mn. Since 60-70% of treatment decisions are based on diagnostic results, we expect Fortis to derive synergy benefits in the long term. 2) One of the Fortis hospitals in Delhi – Escorts - has pending litigations related to right on leasehold land and tax demand of Rs 969 mn. Since the outcome of litigations is pending, this remains a key monitorable.

Revenues to grow at a two-year CAGR of 46%, RoCE to increase

We expect revenues to register a two-year CAGR of 46% to Rs 31.4 bn in FY13 driven by addition of new beds and contribution from the diagnostics business. EBITDA margin is expected to remain stable at 14.9% in FY13. RoCE is expected to improve to 6.2% in FY13 from 2.1% in FY11.

Valuations – the current market price has upside

CRISIL Research has used the discounted cash flow method to value Fortis and arrived at a fair value of Rs 185 per share. While the hospital services business is valued at Rs 156 per share, the 71.4% stake in SRL has been valued at Rs 29 per share. We initiate coverage on Fortis with a valuation grade of 4/5.

KEY FORECAST

(Rs mn) FY09 FY10 FY11# FY12E FY13E

Operating income 6,354 9,487 14,672 25,488 31,429 EBITDA 825 1,352 2,148 3,662 4,674 Adj PAT 87 564 1,091 1,653 1,907 Adj EPS-Rs 0.8 1.4 3.0 4.0 4.7 EPS growth (%) NA 83.6 117.6 32.8 15.3 Dividend yield (%) - 9.8 - - - RoCE (%) 2.2 1.7 2.1 4.8 6.2 RoE (%) 0.9 4.1 4.2 4.3 4.2 PE (x) 138.7 77.7 62.2 41.4 35.9 P/BV (x) 1.3 2.4 2.1 1.5 1.5 EV/EBITDA (x) 22.1 62.7 29.8 19.8 15.4

NM: Not meaningful; CMP: Current Market Price

#FY11 numbers based on abridged financials

Source: Company, CRISIL Research estimate

CFV MATRIX

KEY STOCK STATISTICS NIFTY/SENSEX 5600/18618

NSE/BSE ticker FORTIS

Face value (Rs per share) 10

Shares outstanding (mn) 405.7

Market cap (Rs mn)/(US$ mn) 67,837/1,525

Enterprise value (Rs mn)/(US$ mn) 64,737/1,455

52-week range (Rs) (H/L) 177 / 124

Beta 0.9

Free float (%) 18.5%

Avg daily volumes (30-days) 275,665

Avg daily value (30-days) (Rs mn) 44

SHAREHOLDING PATTERN

PERFORMANCE VIS-À-VIS MARKET

Returns

1-m 3-m 6-m 12-m

Fortis 3% 3% 24% 10%

NIFTY 2% -5% -1% 4%

ANALYTICAL CONTACT Sudhir Nair (Head) [email protected]

Ravi Dodhia [email protected]

Bhaskar Bukrediwala [email protected]

Client servicing desk

+91 22 3342 3561 [email protected]

1 2 3 4 5

1

2

3

4

5

Valuation Grade

Fu

nd

am

en

tal G

rad

e

Poor Fundamentals

ExcellentFundamentals

Str

on

gD

ow

nsi

de

Str

ong

Upsi

de

76.5% 81.5% 81.5% 81.5%

5.2%5.5% 6.3% 7.4%

1.3%2.7% 2.0% 1.7%

17.0% 10.3% 10.2%9.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun-10 Sep-10 Dec-10 Mar-11

Promoter FII DII Others



Table 1: Fortis: Business environment

Product / Segment Hospitals Diagnostic Services

Sales contribution (FY11) 100% Nil*

Sales contribution (FY13) 74.7% 25.3%

Product / service offering Healthcare delivery services with major focus on

specialties such as cardiology, neurology,

orthopaedic, renal, gastro, etc. The company is also

increasing its focus on oncology

Provides diagnostic, preventive care and

clinical research trial testing services

through SRL. In August 2010, SRL acquired

Piramal Diagnostic – a major player in

radiology services

Geographic presence Started the first hospital in Mohali in FY01.

Currently, it has a dominant presence in the North

with more than 50% beds. Acquisition of Malar and

Wockhardt hospitals ensure a presence in the South

and West as well.

Pan India

Market position One of the leading private healthcare service

providers in the country with a network of ~3,600

owned beds and ~1,200 managed beds

Diagnostic service industry is highly

fragmented with organised players having

~10% market share. SRL has the largest

share, 48%, in the organised diagnostic

services market in India

Industry growth

expectations

• Healthcare delivery services industry to grow at a

five-year CAGR of 12% to Rs 3,500 bn by FY15

• Lack of government spending especially in

secondary and tertiary care to provide

opportunity for private players who are

increasingly looking to expand in this space

Diagnostic service industry is expected to

grow at a five-year CAGR of more than 25%

by FY15

Sales growth

(FY08-FY11 – 3-yr CAGR)

40.9% NA*

Sales forecast

(FY11-FY13 – 2-yr CAGR)

26.0% 27.2%#

Key competitors Apollo Hospitals, Max India, Manipal Group Dr. Lal Pathlabs, Metropolis, Thyrocare,

Medinova and Quest Diagnostics

Demand drivers • Low penetration of beds and doctors leads to

huge opportunity for private players. India has

only nine beds and six doctors per 10,000 people,

far below the global average of 27 and 14

respectively

• Growing medical tourism industry and increasing

insurance penetration to enhance growth

prospects of leading hospital chains in India

• Rising lifestyle diseases, increasing health

awareness and preference for healthy lifestyle

with preventive care

• Growing healthcare industry will have a

direct impact as 60-70% treatment

decisions are based on diagnostic test

results

Margin drivers • A newly commissioned hospital takes ~two years

to break-even at EBITDA level. However margins

improve as it matures

• We expect ~500 beds to be commissioned in next

two years, which will moderate margins

• Margins to improve once the recently

opened laboratories mature. New

laboratories take ~two years to break-

even at PBT level

*Fortis acquired diagnostic business (Super Religare Laboratories) in May 2011

#Considering full-year numbers of FY11 for Piramal, which was acquired in August 2010

Source: Company, CRISIL Research



Grading Rationale

A leading player in Indian healthcare industry…

Fortis is one of the leading players in the Indian healthcare services industry

with ~4,800 installed beds. Having started its first hospital with 300 beds in

Mohali in FY01, it is now present across geographies - ~56 hospitals (eight are

under construction) across 17 major cities in India.

Pan-India footprint of Fortis


Though Fortis has a dominant presence in North India with more than 50% of

the beds, acquisitions of Wockhardt and Malar hospitals have helped it make

inroads in western and southern regions. With an aim to further expand and tap

opportunities in central India, Fortis plans to add ~1,400 beds over the next

two-three years.

Noida> Fortis Hospital (350 beds)

Faridabad> Fortis Escorts Hospital (250 beds)

Delhi> EHIRC (331 beds)>La Femme (45 beds)

>Flt. Lt. Rajan Dhall (200 beds)

> Jessa Ram (150 beds)> Shalimar Bagh (350 beds)

Ahmedabad (200 beds)

Bengaluru>Fortis Hospital (100 beds)>BG Road (451 beds)>Cunningham Road (128 beds)

Kota> Fortis Modi Hospital (200 beds)

Ludhina 1 (200 beds)Ludhina 2 (75 beds)

Chennai >Fortis Malar Hospital (250 beds)

Upcoming hospitals

Existing hospitals

Mohali> Fortis Hospital (300 beds)

Gurgaon> FIIBMS (1,000 beds)Amritsar

> Fortis Escorts Hospital (166 beds)

Mumbai>S L Raheja Hospital (280 beds)>Mulund (567 beds)

Gwalior (200 beds)

Bengaluru (120 beds)

Kangra (100 beds)

Kolkata>Anandpur (414 beds)

Fortis expanded from

300 beds in FY01 to the

current 4,833 installed

beds



Figure 1: Bed details of different players Figure 2: Dominating position in northern region

Source: Company, CRISIL Research Source: Company, CRISIL Research

Over the years, Fortis has shown consistent improvement in operating

parameters. While the occupancy rate increased from 63% in FY08 to 72% in

FY11 (marginal y-o-y decline of 200 bps as ~350 beds were operational in

2HFY11), average length of stay (ALOS) declined from 4.3 days to 3.7 days

during the same period. Average revenue per occupied bed (ARPOB) increased

from Rs 7.7 mn in FY08 to Rs 8.1 mn in FY11.

Figure 3: Occupancy rates up in past three years Figure 4: Improving trend in ARPOB and ALOS


Focused on lifestyle-related diseases

India’s urban population share is expected to increase from 28% now to ~32%

by FY14. Given the increase in urban population and sedentary urban lifestyle,

profile of diseases is expected to shift from contagious to lifestyle–related such

as cancer, cardiac-related and diabetes. We expect cardiac patients in India to

increase from 45 mn in FY08 to 72 mn in FY18. According to an IBEF survey, an

average treatment cost for lifestyle diseases is ~6-7x that of infectious diseases.

Fortis, with its established brand and a major focus on cardiology and oncology,

is expected to benefit from the gradual shift in disease profile. Currently, 35% of

its revenues are from the cardiac segment and 5% from oncology. However, the

latter’s contribution is expected to increase to 10-12% in FY13 with the

commissioning of the oncology block in Mulund.

3,622 3,557 4,313

2,220

2,785

2,875

1,276

-

2,000

4,000

6,000

8,000

10,000

Apollo Fortis Manipal

Owned Subs/JV/associates Managed

14%

58%

8%

20%

55%

16% 17%

11%

0%

10%

20%

30%

40%

50%

60%

70%

North South West East and others

Apollo Fortis

63%

68%

74%

72%

56%

60%

64%

68%

72%

76%

FY08 FY09 FY10 FY11

Occupancy

20,959 22,192 22,740 22,192

4.34.2

4.1

3.7

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

20,000

20,500

21,000

21,500

22,000

22,500

23,000

FY08 FY09 FY10 FY11

(Days)(Rs)

ARPOB ALOS (RHS)



… which is at an inflection point

Fortis is in an industry which is at a nascent stage compared to its counterparts

in developed economies. However, we derive our confidence on the industry,

which is at an inflection point, based on shift in demographics, rise in per capita

income and pick-up in health insurance and medical tourism. CRISIL Research

expects the Indian healthcare industry to grow at a five-year CAGR of 12% to

Rs 3,500 bn by FY15.

India spends ~4% of its GDP on healthcare, significantly lower than the US

(15%), Australia (9%) and Brazil (8%). Also, the per capita spend on healthcare

in India is merely US$109 (adjusted for PPP) compared to more than US$4,000

in developed economies. According to WHO Health Statistics (WHO) 2010, India

faces acute shortage in desired healthcare infrastructure. It has nine beds and

six doctors per 10,000 people against the global average of 27 beds and 14

doctors, respectively. CRISIL Research believes that in order to meet

international benchmarks set by WHO for healthcare infrastructure, India will

require an investment of over Rs 6 tn over the next five years.

Figure 5: India has lower per capita spend on healthcare

Source: CRISIL Research

Shift in demographics spell good tidings

The Indian population is expected to register steady growth of 1.3% by FY26.

However, growth in the 30+ age group will be comparatively higher at 2.7%.

According to a US-based study by Medicare, US residents incur about 75% of

their total medical expenditure after reaching 40. Similar trends and shift in

demographics in India signal an increase in healthcare expenditure in the

coming years.

7,290

3,5883,261

2,992

1,643

799 797 604233 109

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

US

Germ

any

Aus

tralia UK

Sin

gapor

e

Bra

zil

Rus

sia

Mala

ysi

a

Chi

na

Indi

a

($)

Population growth in 30+

age group will be higher at

2.7% in the next 20 years

India’s per capita spend on

healthcare is mere US$109

(adjusted for PPP)



Health insurance and medical tourism are picking up in India

The health insurance penetration in India is currently low at 5% vs. ~80% in

countries such as the US, China and Singapore. Although the insurance

coverage is currently low, given the rise in interest from private health insurance

companies, we expect penetration to gradually increase to ~50% by FY30.

Medical tourism has been gaining momentum in India with the number of

medical tourists increasing from 40,000 in FY02 to ~500,000 in FY08. We

believe the following factors will further drive growth in the medical tourism

industry:

• Cost advantage: Complicated procedures in India cost ~one-tenth of that

in the developed countries.

• Limited waiting period: Unlike a waiting period of ~15 days to one month

in developed countries, India has minimal or virtually nil waiting period.

• International quality standards: Some of the well-established hospitals

in India are Joints Commission International (JCI) accredited, depicting

international quality services at comparatively lower costs.

Figure 6: Growing insurance penetration in India Figure 7: Medical tourists inflow on rise

Source: CRISIL Research Source: CRISIL Research

Inorganic route quickened pace of growth in the past

Unlike other established players like Apollo, Manipal – which has grown through

greenfield projects, Fortis prefers the inorganic route for expansion. Out of the

current 3,600-owned beds, ~60% are through acquisitions and 40% via

greenfield expansion. Given the timeline of ~3 years to set up a multi-specialty

hospital, we believe acquisitions have enabled Fortis get a head-start to register

faster growth.

36

16

30

47

0

5

10

15

20

25

30

35

40

45

50

2008 2013 2018 2023 2028

% of population covered

10 40

140

230

500

1,000

0

100

200

300

400

500

600

700

800

900

1,000

FY00 FY02 FY04 FY06 FY08 FY12P

('000)

Medical tourists

Unlike other established

players, Fortis has taken

the inorganic route for

expansion

Health insurance is

currently at 5% in India



Figure 8: Fortis has grown aggressively through acquisitions


Acquired hospitals are strategically located

In the past five years, Fortis spent ~Rs 15.5 bn to acquire three hospital groups,

totalling 2,400 beds, translating into an EV/bed of ~Rs 6.5 mn. Although the

cost incurred is at par with the industry standards, Fortis has spent additionally

on refurbishment of the hospitals. Considering this, valuations look expensive

but given the strategic location of these assets, Fortis will be at an advantage in

the long term. For instance, Wockhardt, Mulund which commenced operations in

FY05, was the first multi-specialty hospital within a radius of 50 km and is

currently operating at occupancy levels of more than 75%.

Table 2: Details of acquired beds

Particulars Malar Wockhardt Escorts

No. of beds 178 1368 881

Total consideration (Rs mn) 550 9090 5850

EV/Bed (Rs mn) 3.1 6.6 6.6

Source: Company

Steady improvement in performance of acquired assets

Fortis has been able to successfully integrate acquired hospitals and improve

their operating parameters. The acquired hospitals registered strong growth in

revenues with a steady improvement in EBITDA margins, which underscores the

capability of the management to turn around and successfully handle the

operations. Considering the fact that majority of the tertiary care facilities

break-even at the EBITDA level in the second-third year of operations, Fortis

was able to break even at the Jaipur facility in just 15 months of its operations.

Escorts Delhi (acquired in FY05), however, was as exception; post Dr. Naresh

Trehan’s exit in FY08, revenues declined ~34% y-o-y. Nevertheless, its

performance showed steady increase from FY08 onwards.

951

4,833

2,522

8,717

0

2,000

4,000

6,000

8,000

10,000

FY06 FY11

Fortis Apollo

Fortis has turned around

acquired hospitals

Fortis acquired ~2,400

beds at an EV/bed of

Rs 6.5 mn



Figure 9: Margins improved at Escorts, Jaipur Figure 10: Fortis Malar had strong revenue growth


Figure 11: Revenues and margins grew at Escorts,

Amritsar

Figure 12: Steady run post FY08 hurdle at Escorts,

Delhi


Future expansion – going greenfield

Fortis has grown through the inorganic route in the past. However, it plans to

add ~1,400 beds over the next two-three years through greenfield expansion.

The company has a total outlay of Rs 5,740 mn, of which Rs 2,000 mn has

already been incurred. Post commissioning of new beds, its total bed capacity

will increase to 5,800 beds in FY14. Though the company has executed few

greenfield projects in the past, timely execution of the new and comparatively

larger hospitals is a key monitorable.

170

382 637

841

0%

-7%

19%

22%

-10%

-5%

0%

5%

10%

15%

20%

25%

-

100

200

300

400

500

600

700

800

900

FY08 FY09 FY10 FY11

(Rs mn)

Revenue EBITDA margins (RHS)

140179

332

644

83329%

23%

3%

15%17%

0%

5%

10%

15%

20%

25%

30%

35%

0

200

400

600

800

1,000

FY07 FY08 FY09 FY10 FY11

(Rs mn)


264 258 416 501 616

11% 11%

23%

28%

25%

0%

5%

10%

15%

20%

25%

30%

0

100

200

300

400

500

600

700


(Rs mn)


2,447

1,718 1,903

2,832 3,112

13.0%

4.0%

14.0%

19.2%

17.0%

0%

5%

10%

15%

20%

25%

0

500

1,000

1,500

2,000

2,500

3,000

3,500


(Rs mn)


Fortis to add ~1,400

beds in the next two-

three years



Table 3: Capacity additions details

Location Beds Area

Land/

building

ownership

Company’s

expected date of

commencement

Our expected

date of

commencement

Total

outlay

(Rs mn)

Kangra 100 37,000 sq.ft. Building on lease June-11 Dec-11 240

Dehradun 50 27,000 sq.ft. Public private partnership Sep-11 Mar-12 150

Gurgaon 450 11 acres Owned Mar-12 Sep-12 3,250

Ludhiana – 1 200 1,55,000 sq.ft. Building on lease FY12 FY13 500

Ludhiana – 2 75 60,000 sq.ft. Building on lease FY12 FY13 200

Peenya, Bengaluru 120 ~70,000 sq.ft. Building on lease Mar-12 Dec-12 180

Ahmedabad 200 1,55,000 sq.ft. Building on lease FY14 FY15 500

Gwalior 200 2.5 acres Land on lease FY14 FY15 720

Total 1,395

5,740


Hub and spoke model to ease expansion

Fortis plans to enter new territories and expand its presence in the existing

geographies through the hub and spoke model. The company plans to set up a

super/multi-specialty hospital (hub) in key cities of the region and then develop

secondary/tertiary care hospitals across the region that will nourish the hub or

the super/multi-specialty hospital. As per the strategy, Fortis is enhancing its

presence in the northern region and eyeing the central region for expansion.

Adopted asset-light model, but there are challenges

Given a rapid increase in real estate costs particularly in metros / tier I cities,

healthcare players are increasingly looking for alternatives to tackle higher land

costs. Accordingly, Fortis has adopted the asset-light strategy for expansion.

Under this model, the company will enter into a lease agreement with the land

owner/developers who will provide the land and build the infrastructure as

specified by the company.

Of the eight upcoming hospitals, seven are on a lease basis; it owns only the

Gurgaon facility. Since land and building constitutes ~60% of the total outlay in

setting up a hospital, capital requirement will be significantly lower in the asset-

light model. Further, lower interest and depreciation costs are expected to

increase return ratios in the long run. Therefore, we believe adopting the lease

model will enable the company to expand rapidly and enhance return ratios.

However, dealing with the land owners/developers and convincing them to

invest in a healthcare project is a difficult task. Apart from lease rentals, they

might demand revenue-share from the project, wherein the healthcare player

may have to forgo some proportion of margin from the project.

Asset-light model helps

the company grow faster

and enhance return

ratios



Figure 13: High margins, low RoCE in asset-heavy

model

Figure 14: Low margins, high RoCE in asset-light

model

Source: CRISIL Research Source: CRISIL Research

SRL acquisition to aid hospital business

The company recently acquired a 71.4% stake in Super Religare Laboratories

(SRL) for Rs 8,030 mn. SRL is one of the largest diagnostic service providers in

the country with a network of ~65 laboratories. In August 2010, SRL acquired

Piramal Diagnostic Services (Piramal), a dominant player in the radiology

segment with 105 laboratories.

The diagnostic services industry currently accounts for ~3.6% of the healthcare

market and primarily covers clinical pathology and imaging/radiology services.

The industry is highly fragmented with organised players accounting for ~9%

(top three players account for 7%) of the Rs 59 mn market. Increase in

prevalence of lifestyle diseases, growing consumer awareness and preference for

healthy lifestyle with preventive care are expected to boost diagnostic services;

we expect a five-year CAGR growth of more than 25% by FY15. SRL (along with

Piramal) is anticipated to have a market share of 48% in the organised market.

Figure 15: Diagnostic industry is highly fragmented Figure 16: Robust growth in diagnostic industry


110%

100%

92% 86% 78%

-10%

0%8% 14% 22%

-7%-5%

0%

6%

16%

-10%

-5%

0%

5%

10%

15%

20%

-10%

10%

30%

50%

70%

90%

110%

130%

Year 1 Year 2 Year 3 Year 4 Year 5

(as a % of revenues)

Operating Costs EBITDA margin RoCE (RHS)

EBITDA

breakeven

19%12% 9% 7% 6%

110%

100%

92% 86%78%

-29%

-12%

-1%

7%16%

-19%-15%

-6% 5%

25%

-30%

-20%

-10%

0%

10%

20%

30%

-30%

-10%

10%

30%

50%

70%

90%

110%

130%

Year 1 Year 2 Year 3 Year 4 Year 5

(as a % of revenue)

Rent Operating costs EBITDA margin RoCE (RHS)

EBITDA breakeven

Organised players, 9%

Unorganised players, 91%

41

18

181

74

0

50

100

150

200

Pathology Radiology

(Rs bn)

FY09 FY15

Fortis acquired 71.4% stake

in SRL for Rs 8,030 mn



Robust growth in the healthcare industry is expected to benefit the diagnostic

services industry as 60-70% of the treatment decisions are based on test

results. SRL, being a dominant player, will be a key beneficiary of strong growth

in the industry. We expect Fortis to derive significant synergy benefits from this

acquisition

Table 4: Expected performance of SRL

FY09 FY10 6MFY11 FY11 FY12E FY13E

No. of labs 147 150 150 170 175 195

Revenues (Rs mn) 3,068 3,749 2,344 4,867 5,906 7,880

EBITDA (Rs mn) 401 265 309 584 755 1,036

EBITDA margin 13.1% 7.1% 13.2% 12.0% 12.8% 13.1%


Group looks beyond India, Fortis focuses at home

To establish a global presence, Fortis acquired 25.3% stake in Parkway Holdings

for S$1,000 mn from TPG Capital at S$3.54 per share. Parkway is a Singapore-

based healthcare service provider with ~3,600 beds spread across Malaysia

(1,900), Singapore (1,022), India (425), UAE (260), Brunei (20) and China (14).

Post counter offer from Khazanah, Fortis sold off its entire stake to it.

Khazanah counterbid led to withdrawal

Khazanah, a sovereign fund of Malaysia, counterbid with a price of S$3.95 per

share in response to Fortis’ revised offer of S$3.8 per share. In view of

Khazanah’s revised bid, Parkway’s hospital business was valued at ~S$3.1 bn,

which translates into EV/bed of ~Rs 30 mn (~5x of average cost to acquire

Escorts, Malar and Wockhardt hospitals). Considering this as an expensive deal,

management sold off its 25.4% stake to Khazanah and made a net profit of

~Rs 180 mn.

Table 5: Net profit of Rs 180 mn from Parkway deal

Particulars

No. of

shares (mn)

Price per

share

Amount

(S$)

Investment in Parkway (A) 282.7 3.54 1,000.8

Khazanah offer (B) 282.7 3.95 1,116.7

Profit (S$) (A-B) 115.9

Assumed S$/Re rate 31.7

Profit (Rs mn) 3,670.0

Legal expenses (incl. investment

banking fees) (Rs mn) 1,610.0

Finance costs (Rs mn) 1,804.0

Net profit (Rs mn) 180.0

Source: Company

Post closure of Parkway deal, the management decided to concentrate on

opportunities in the domestic market through Fortis. Global acquisitions, which

provide access to latest technology and technical know-how, will be targeted

through the promoter’s company. We believe this strategy will help the group

enhance focus on the domestic market, keeping it abreast with latest technology

with limited strain on the balance sheet.

Khazanah valued

Parkway’s hospital

business at an EV/bed of

Rs 30 mn



Litigation on Escorts’ hospital – a key monitorable

One of the Fortis hospitals - Escorts Heart Institute and Research Centre

(Escorts) - has pending litigations which include: (i) Escorts’ right on leasehold

of the land on which its Delhi hospital is located and (ii) certain income tax

exemptions claimed by Escorts’ predecessors.

Escorts’ was a charitable society, which merged with a non-charitable society

and was incorporated as a company. The Delhi Development Authority (DDA),

the owner of the land, has considered the merger and the subsequent

conversion to a company as prohibited transfers of property under its terms and

condition, which are now being challenged in the Delhi High Court. The

proceedings of these litigations are pending and the outcome is uncertain.

Fortis has exposure of Rs 5,850 mn in five hospitals (881 beds) of Escorts

group. Escorts, Delhi has ~320 beds and contributed ~20% to the top-line in

FY11. Any adverse ruling by the court may significantly impact Fortis’ financials.

Fortis has exposure of

~Rs 2,220 mn in Escorts,

Delhi



Key risks

Inability to attract or retain healthcare professionals might impact growth prospects

Fortis’ performance and execution of future growth strategy is highly dependent

on the company’s ability to attract and retain healthcare professionals. Fortis, in

the past, has witnessed loss of services of one of its key personnel – Dr Naresh

Trehan, which had significantly impacted its operations. Therefore, the inability

to retain or attract key professionals might impact the company’s future growth

prospects.

Delay in expansion plans

Fortis plans to add ~1,400 beds at varied locations such as Gurgaon, Ludhiana,

Bengaluru and Ahmedabad over the next three-four years. Previously, the

company has witnessed delays in commencement of operations of the Shalimar

Bagh hospital. Though we have assumed delays in commissioning of new beds,

higher-than-expected delays or cost overruns could impact financials and

valuations.

Expensive acquisitions may strain balance sheet

Fortis has adopted the inorganic route to expand its geographic reach and

enhance its bed capacity. In a bid to acquire a majority stake in Parkway

Holdings in FY10, its debt-to-equity ratio increased to ~3x. However, the

company sold its stake to Khazanah considering it an expensive acquisition.

Although the company intends to go for a global acquisition through a promoter-

holding company, any expensive acquisitions in the future might strain its

balance sheet.

Loss of key personnel may

hamper future growth plans

Debt-to-equity has increased

to 3x in FY10 post Parkway

acquisition



Financial Outlook

Revenues to grow at a two-year CAGR of 46%

Revenues are expected to increase at a two-year CAGR of 46% to Rs 31.4 bn in

FY13 driven by new bed additions and growth in the diagnostics business.

Revenues from the hospital business are expected to grow at a two-year CAGR

of 26% to Rs 23.6 bn in FY13, while SRL is expected to register 27.2% growth

to Rs 7.9 bn during the same period.

Figure 17: Revenues to grow at a two-year CAGR of 46%


Figure 18: Revenue break-up from major hospitals Figure 19: SRL to contribute 25% in FY13


EBITDA margin to remain stable in the medium term

We expect EBITDA margin to remain stable from 14.6% in FY11 to 14.9% in

FY13. Higher margin from the mature beds is expected to be offset by addition

of ~500 beds in next two years, which will have lower margins in the initial

years.

6,354 9,487 14,672 25,488 31,429

20%

49%55%

74%

23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

FY09 FY10 FY11 FY12E FY13E

(Rs bn)

Revenue y-o-y growth (RHS)

29% 28%21% 19% 18%

24%17%

14% 13% 13%

0%1%

5% 6% 6%

14%12%

11% 9% 9%

0% 11% 29%29% 30%

33% 30%21% 24% 25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Escorts, Delhi Fortis, Mohali Oncology Block, Mulund

Fortis, Noida Wockhardt Others

100% 100% 100%

77% 75%

23% 25%

0%

20%

40%

60%

80%

100%


Hospital services Diagnostic services

Revenue growth of 46%

supported by new bed

additions and diagnostic

business

EBITDA margin to remain

stable at 14.9% in FY13



Figure 20: EBITDA margin to remain stable


PAT to grow at a two-year CAGR of ~24%, EPS to increase from Rs 3.0 in FY11 to Rs 4.7 in FY13

Fortis’ consolidated PAT is expected to grow at a two-year CAGR of 24.2% to

Rs 1.9 bn in FY13. Revenue growth will be offset by moderation in margins and

higher depreciation expenses. We expect EPS to increase from Rs 3.0 in FY11 to

Rs 4.7 in FY13.

Figure 21: PAT and PAT margins


RoCE to improve post FY12

Fortis currently has lower RoCE of 3-4%, significantly below 20-25% that a

hospital generates in a steady operational state. Since the company is in a

capital expenditure mode and plans to add ~1,400 beds, RoCE is currently low.

Also, RoCE in the initial years is lower given that a standalone hospital takes 18-

24 months to break even at the EBITDA level. Going forward, we expect RoCE to

improve once the newly commissioned beds mature. Further, improving

performance of mature beds in the northern region is expected to boost RoCE.

We expect RoCE to improve from 2.1% in FY11 to 9.9% in FY16.

8251,352

2,148

3,662

4,674

13.0%

14.2%

14.6%

14.4%

14.9%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

15.5%

0

1,000

2,000

3,000

4,000

5,000


(Rs mn)

EBITDA EBITDA margins(RHS)

173

445

1,236

1,6531,907

2.7%

4.7%

8.4%

6.5% 6.1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

250

500

750

1,000

1,250

1,500

1,750

2,000


(Rs mn)

PAT PAT margin(RHS)

PAT to grow from Rs 1.2

bn in FY11 to Rs 1.9 bn in

FY13

RoCE to improve from

2.1% in FY11 to 9.9% in

FY16



Figure 22: RoCE to improve post commissioning of new beds


1,032

11,870

2,639

9,381

1,627 2,204

1,056 1,103

2.21.7

2.1

4.8

6.2

7.2

8.4

9.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-

2,500

5,000

7,500

10,000

12,500

FY09 FY10 FY11 FY12E FY13E FY14E FY15E FY16E

(%)(mn)

Capex RoCE (RHS)



Management Overview

CRISIL's fundamental grading methodology includes a broad assessment of

management quality, apart from other key factors such as industry and business

prospects, and financial performance.

Experienced management with domain expertise

Fortis is managed by erstwhile promoters of Ranbaxy Laboratories – Mr

Malvinder Singh (non-executive chairman) and Mr Shivinder Singh (managing

director). The promoters have a strong background in the pharmaceutical

industry and more than a decade of experience in the healthcare services

industry.

Mr Malvinder Singh is a graduate in economics and has done MBA from Duke

University, US. Currently, he is on the board of the Indian Council for Research

on International Economic Relations (ICRIER). Mr Shivinder Singh is a graduate

in mathematics and has done MBA with specialisation in health sector

management from Duke University, US. Currently, he is the chairperson of the

health services committee of FICCI and board member of National Accreditation

Board for Hospital and Healthcare Providers (NABH).

Aggressive management; have grown the company through inorganic route

Fortis' management is quite aggressive; it has expanded from a single 300-bed

hospital in FY01 to the current 56 hospitals with ~4,800 installed beds. The

management has adopted the inorganic route to expand reach; 60% of the total

beds are through acquisitions. The management was also able to successfully

integrate the operations of the acquired hospitals, which have shown consistent

improvement in operating performance. Acquisition of 71.4% stake in SRL

(diagnostic services) depicts the management's intent to have a presence in the

entire spectrum of healthcare space.

Professional set-up and strong second line

Fortis believes in a professional set-up and has a strong second line of

management. This includes Mr Daljit Singh (president – strategy & projects)

who has over eight years of experience in the healthcare industry and has prior

experience of working with ICI (India) Ltd for ~28 years. Mr Yogesh Sareen

(CFO) has over 22 years of experience in the healthcare industry and has served

as director – finance at Ranbaxy Laboratories.

Management has more

than a decade of

experience in the

healthcare industry

Aims to mark a presence

in the entire spectrum of

healthcare space



Corporate Governance

CRISIL’s fundamental grading methodology includes a broad assessment of

corporate governance and management quality, apart from other key factors

such as industry and business prospects, and financial performance. In this

context, CRISIL Research analyses the shareholding structure, board

composition, typical board processes, disclosure standards and related-party

transactions. Any qualifications by regulators or auditors also serve as useful

inputs while assessing a company’s corporate governance.

Overall, corporate governance at Fortis reflects good practices supported by a

strong and fairly independent board, good and relevant experience, and board

processes and structures broadly conforming to minimum standards.

Board composition

Fortis’ board consists of 10 members, of whom six are independent directors,

which exceeds the requirements under Clause 49 of SEBI’s listing guidelines.

The board brings sector expertise relevant to Fortis as well as diversified

technical and business experience.

Board’s processes

The board's processes appear to be well structured, with all the committees -

audit, remuneration and investor grievance - in place, supporting good corporate

governance practices and decision-making framework. The audit committee is

chaired by an independent director, Mr Balinder Singh Dhillon. The committee

meets at timely and regular intervals. The board also includes other well-known

names like Mr Gurucharan Das, who has held positions of CEO in Procter and

Gamble India and CMD in Richardson Hindustan Limited. He is an operating

advisor and investor in Chrys Capital LLC. Lt. Gen. T. S Shergill is also an

independent director; he was chairman of the Punjab Public Service Commission

and is currently a member of the board of governors of the University of

Petroleum and Energy Studies.

Good disclosure standards

The company’s quality of disclosure can be considered good, judged by the level

of information and details furnished in the annual report, websites and other

publicly available data. For instance, the company discloses hospital-wise

performance (revenues and margins) in its quarterly presentations. The

disclosure level is sufficient to analyse the various business aspects.

Fortis board consists of 10

members, of whom six

are independent directors



Valuation Grade: 4/5

We have used the discounted cash flow (DCF) method to value Fortis and

arrived at a fair value of Rs 185 per share. While the hospital business has been

valued at Rs 156 per share based on DCF, its 71.4% stake in SRL is valued at

Rs 29 per share based on its DCF value of Rs 13,974 mn. The stock is currently

trading at Rs 167 per share. Consequently, we initiate coverage on Fortis with a

valuation grade of 4/5, indicating that the current market price has upside

from the current levels.

Key DCF assumptions for hospitals business

We have considered the discounted value of the firm’s estimated free cash flow

from FY13 and have assumed a terminal growth rate of 5%.

WACC computation

FY13-23 Terminal value

Cost of equity 15.7% 15.7%

Cost of debt (post tax) 8.0% 8.0%

WACC 10.0% 11.5%

Terminal growth rate 5.0%

Sensitivity analysis to terminal WACC and terminal growth rate

Terminal growth rate

Term

inal

WA

CC

3.0% 4.0% 5.0% 6.0% 7.0%

9.5% 170 187 211 249 317

10.5% 152 163 178 200 235

11.5% 138 146 156 170 190

12.5% 128 134 141 150 163

13.5% 120 124 130 136 145

Source: CRISIL Research estimates

Key DCF assumptions for diagnostics business

We have considered the discounted value of the firm’s estimated free cash flow

from FY13 and have assumed a terminal growth rate of 5%.

WACC computation

FY13-23 Terminal value

Cost of equity 17.5% 17.5%

Cost of debt (post tax) 8.0% 8.0%

WACC 12.6% 13.2%

Terminal growth rate 5.0%

Sensitivity analysis to terminal WACC and terminal growth rate

Terminal growth rate

Term

inal

WA

CC

3.0% 4.0% 5.0% 6.0% 7.0%

11.2% 33 37 42 49 59

12.2% 28 31 35 39 46

13.2% 25 27 29 32 37

14.2% 22 23 25 27 30

15.2% 19 20 22 24 26

Source: CRISIL Research estimates

We assign a fair value of

Rs 185 per share to Fortis



Factors that can impact the fair value

Upside

• Early break-even of the newly established hospitals

• Faster-than-expected growth in the diagnostics business

• Deployment of cash for value accretive hospitals

Downside

• Delay in commissioning of the new beds

One-year forward P/E band One-year forward EV/EBITDA band

Source: NSE/BSE, Company, CRISIL Research Source: NSE/BSE, Company, CRISIL Research

P/E – premium / discount to NIFTY P/E movement

Source: NSE/BSE, Company, CRISIL Research Source: NSE/BSE, Company, CRISIL Research

0

50

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Apr-

09

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-10

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Fortis 32x 40x 48x 56x 64x

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EV 12x 22x 32x 42x

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600%

800%

1000%

1200%

Apr

-09

Jun-0

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09

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-09

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-10

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0

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Premium/Discount to NIFTY Median premium/discount to NIFTY

20

30

40

50

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80

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9

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09

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1yr Fwd PE (x) Median PE

+1 std dev

-1 std dev



Peer comparison

Companies

M.cap ROE EPS P/E P/BV EV/EBITDA

(Rs mn) CY10 CY11E CY12E CY10 CY11E CY12E CY10 CY11E CY12E CY10 CY11E CY12E CY10 CY11E CY12E

Fortis* 67,837 4.2 4.3 4.2 3.0 4.0 4.7 62.2 41.4 35.9 2.1 1.5 1.5 29.8 19.8 15.4

Apollo Hospitals Enterprise * 61,857 10.5 11.3 11.8 14.7 17.1 19.4 33.6 29.0 25.6 3.4 3.1 2.9 16.3 14.0 12.4

US players (US$ mn)

Universal Health Services-B 7,059 17.6 17.6 17.2 3.0 4.0 4.5 17.6 13.1 11.6 2.4 2.2 1.8 15.3 9.4 8.8

Health Net Inc 2,757 12.6 12.6 16.2 2.4 3.0 3.3 12.5 10.2 9.3 1.9 1.7 1.5 30.2 23.5 22.9

Community Health Systems Inc 2,394 12.4 12.4 15.2 3.1 3.2 3.5 8.2 7.9 7.2 1.0 0.9 0.8 6.5 6.0 5.8

Lifepoint Health Inc 1,984 8.1 8.1 8.4 3.0 3.1 3.4 12.5 12.3 11.1 1.0 0.9 0.8 21.2 20.7 19.6

Tenet Healthcare Corp 2,937 13.9 13.9 15.0 0.4 0.4 0.5 16.2 14.0 12.2 1.9 1.8 1.5 10.6 9.0 8.6

Health Mgmt Associates Inc-A 2,615 30.4 30.4 24.7 0.7 0.8 0.9 14.2 13.6 11.9 3.3 3.5 2.7 15.0 13.8 12.8

Well Point Inc 28,110 10.9 10.9 11.4 7.1 7.1 7.7 10.8 10.8 9.9 1.2 1.2 1.1 2.1 2.4 2.3

Medco Healthcare Solutions 21,701 46.4 46.4 47.1 3.3 4.1 4.7 16.4 13.2 11.5 6.0 6.3 5.6 3.7 3.5 3.3

Other global players (US$ mn)

Ramsay Healthcare Ltd * 3,557 16.5 16.5 17.2 0.8 1.0 1.1 21.1 17.3 15.3 3.5 2.8 2.6 25.1 20.8 18.8

Sonic Healthcare * 4,836 11.7 11.7 12.8 0.7 0.8 0.9 17.7 16.1 14.5 2.0 1.9 1.8 21.4 19.2 17.3

KPJ Healthcare 2,564 16.0 16.0 16.8 0.2 0.2 0.3 20.7 18.8 16.2 3.2 2.9 2.7 58.6 45.7 39.6

Raffles Medical 1,258 16.5 16.5 16.8 0.1 0.1 0.1 26.5 24.6 22.1 4.2 3.9 3.5 20.9 17.1 14.9

Bangkok DUSIT 82,682 15.8 15.8 15.3 1.9 2.4 2.8 27.7 22.6 18.8 4.0 2.9 2.7 2.1 1.4 1.1

Bangkok Chain Hospitals PCL 11,671 19.6 19.6 20.1 0.3 0.4 0.4 19.0 16.6 15.0 3.9 3.0 2.9 8.5 7.8 6.8

Fresenius SE 11,783 14.5 14.5 14.9 4.1 4.5 5.0 17.6 16.0 14.3 2.4 2.0 1.8 3.6 3.5 3.2

Note: *For FY11, FY12E and FY13E

Source: CRISIL Research, industry sources



Company Overview

Incorporated in 1996, Fortis Healthcare (India) Ltd is a leading chain of

hospitals, providing quality and modern healthcare services. The company is

managed by the erstwhile promoters of the Ranbaxy group. It started its first

300-bed hospital in Mohali in 2001 and over the years has expanded to ~4,800

beds. Its key areas of specialisation include cardiology, neuro sciences, oncology

and orthopedics.

Milestones

2001 Inaugurated the first hospital at Mohali with 300 beds

2003-04 Commenced operations in Noida

2005 Acquired 90% in Escorts chain of hospitals for Rs 5,850 mn

2007 Got listed on the BSE and the NSE

Opened a new hospital in Jaipur

2008 Acquired Malar Hospitals (178 beds), Chennai for Rs 550 mn

2009 Rights issue of Rs 10 each at a premium of Rs 100 per share

Acquired 10 hospitals of Wockhardt group at Rs 9,090 mn

2010 Acquired 25% stake in Parkway Holdings and sold to Khazanah for a net profit of Rs 180 mn

Commenced two greenfield facilities in Delhi and Kolkata

Launched an oncology block in Mulund, Mumbai

2011 Signed 5 O&M projects

Acquired strategic stake in Super Religare Laboratories (SRL)




Annexure: Financials

#FY11 numbers based on the abridged financials


Income statement Balance Sheet

(Rs mn) FY09 FY10 FY11# FY12E FY13E (Rs mn) FY09 FY10 FY11# FY12E FY13E

Operating income 6,354 9,487 14,672 25,488 31,429 Liabilities

EBITDA 825 1,352 2,148 3,662 4,674 Equity share capital 2,267 3,173 4,051 4,083 4,086

EBITDA margin 13.0% 14.2% 14.6% 14.4% 14.9% Reserves 6,666 14,989 28,651 38,278 40,093

Depreciation 487 599 930 1,450 1,539 Minorities 216 345 321 2,114 2,367

EBIT 337 752 1,218 2,212 3,135 Net worth 9,149 18,507 33,023 44,475 46,547

Interest 486 514 671 1,022 498 Convertible debt - - - - -

Operating PBT (148) 238 547 1,190 2,637 Other debt 6,551 54,797 9,617 5,652 4,152

Other income 308 365 918 1,038 204 Total debt 6,551 54,797 9,617 5,652 4,152

Exceptional inc/(exp) 86 (119) 144 - - Deferred tax liability (net) 12 (120) (120) (120) (120)

PBT 247 484 1,609 2,228 2,840 Total liabilities 15,713 73,184 42,520 50,007 50,578

Tax provision 41 34 344 521 724 Assets

Minority interest 32 5 30 54 209 Net fixed assets 7,862 11,428 14,754 21,066 21,215

PAT (Reported) 173 445 1,235 1,653 1,907 Capital WIP 1,836 4,256 2,700 - -

Less: Exceptionals 86 (119) 144 - - Total fixed assets 9,699 15,684 17,454 21,066 21,215

Adjusted PAT 87 564 1,091 1,653 1,907 Investments 541 33,429 341 7,845 7,851 Current assets

Ratios Inventory 133 238 402 1,021 1,292

FY09 FY10 FY11# FY12E FY13E Sundry debtors 1,830 2,018 3,064 5,151 6,263

Growth Loans and advances 710 1,169 1,783 3,560 4,437

Operating income (%) 19.9 49.3 54.7 73.7 23.3 Cash & bank balance 579 13,113 12,717 2,544 2,079

EBITDA (%) 398.7 63.9 58.9 70.5 27.6 Marketable securities - 1,055 1,055 1,055 1,055

Adj PAT (%) (111.9) 550.9 93.5 51.5 15.4 Total current assets 3,253 17,593 19,022 13,332 15,126

Adj EPS (%) (111.9) 364.9 51.6 50.3 15.3 Total current liabilities 2,087 3,114 3,827 6,085 7,402

Net current assets 1,166 14,479 15,195 7,246 7,724

Profitability Intangibles/Misc. expenditure 4,306 9,591 9,531 13,849 13,788

EBITDA margin (%) 13.0 14.2 14.6 14.4 14.9 Total assets 15,713 73,184 42,520 50,007 50,578

Adj PAT Margin (%) 1.4 5.9 7.4 6.5 6.1

RoE (%) 0.9 4.1 4.2 4.3 4.2 Cash flow

RoCE (%) 2.2 1.7 2.1 4.8 6.2 (Rs mn) FY09 FY10 FY11# FY12E FY13E

RoIC (%) 6.2 7.0 9.6 10.9 7.0 Pre-tax profit 160 603 1,465 2,228 2,840

Total tax paid (21) (167) (344) (521) (724)

Valuations Depreciation 487 599 930 1,450 1,539

Price-earnings (x) 138.7 77.7 62.2 41.4 35.9 Working capital changes 719 277 (1,112) (2,225) (942)

Price-book (x) 1.3 2.4 2.1 1.5 1.5 Net cash from operations 1,346 1,313 939 932 2,713

EV/EBITDA (x) 22.1 62.7 29.8 19.8 15.4 Cash from investmentsEV/Sales (x) 2.9 9.0 4.4 2.9 2.3 Capital expenditure (1,032) (11,870) (2,639) (9,381) (1,627)

Dividend payout ratio (%) - 964.4 - - - Investments and others (211) (33,944) 33,089 (7,504) (6)

Dividend yield (%) - 9.8 - - - Net cash from investments (1,243) (45,813) 30,449 (16,886) (1,633)

Cash from financing

B/S ratios Equity raised/(repaid) (30) 9,210 13,429 5,326 23

Inventory days 10 13 14 20 20 Debt raised/(repaid) 1,727 48,246 (45,180) (3,965) (1,500)

Creditors days 68 101 73 72 72 Dividend (incl. tax) - (4,288) - - -

Debtor days 106 78 77 74 73 Others (incl extraordinaries) (1,382) 3,867 (33) 4,419 (68)

Working capital days 54 17 22 36 48 Net cash from financing 315 57,034 (31,785) 5,780 (1,545)

Gross asset turnover (x) 0.6 0.7 0.9 1.1 1.1 Change in cash position 419 12,534 (396) (10,174) (465)

Net asset turnover (x) 0.8 1.0 1.1 1.4 1.5 C losing cash 579 13,113 12,717 2,544 2,079

Sales/operating assets (x) 0.7 0.7 0.9 1.3 1.5

Current ratio (x) 1.6 5.6 5.0 2.2 2.0 Quarterly financials

Debt-equity (x) 0.7 3.0 0.3 0.1 0.1 (Rs mn) Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

Net debt/equity (x) 0.7 2.2 (0.1) 0.0 0.0 Net Sales 3,295 3,379 3,579 3,714 4,156

Interest coverage 0.7 1.5 1.8 2.2 6.3 Change (q-o-q) 42% 3% 6% 4% 12%

EBITDA 239 260 441 270 199

Per share Change (q-o-q) 10% 9% 69% -39% -26%

FY09 FY10 FY11# FY12E FY13E EBITDA margin 7.3% 7.7% 12.3% 7.3% 4.8%Adj EPS (Rs) 0.8 1.4 3.0 4.0 4.7 PAT 267 (134) 818 357 322

CEPS 2.5 3.7 5.0 7.6 8.4 Adj PAT 272 (143) 748 345 294

Book value 40.4 58.3 81.5 108.9 113.9 Change (q-o-q) 25% -153% -623% -54% -15%

Dividend (Rs) - 13.5 - - - Adj PAT margin 8.3% -4.2% 20.9% 9.3% 7.1%

Actual o/s shares (mn) 226.7 317.3 405.1 408.3 408.6 Adj EPS 0.9 (0.4) 1.8 0.9 0.7



Focus Charts

India has lowest per capita spend on healthcare Fortis has grown aggressively through acquisitions


Revenue break-up from major hospitals EBITDA margin to remain stable in near term


RoCE to grow post commissioning of new beds Shareholding pattern over the quarters


7,290

3,5883,261 2,992

1,643

799 797 604233 109

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

US

Germ

any

Aus

tralia UK

Singap

ore

Bra

zil

Rus

sia

Mala

ysia

Chin

a

India

($)

951

4,833

2,522

8,717

0

2,000

4,000

6,000

8,000

10,000

FY06 FY11

Fortis Apollo

29% 28%21% 19% 18%

24%17%

14% 13% 13%

0%1%

5% 6% 6%

14%12%

11% 9% 9%

0% 11% 29%29% 30%

33% 30%21% 24% 25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Escorts, Delhi Fortis, Mohali Oncology Block, Mulund

Fortis, Noida Wockhardt Others

8251,352

2,148

3,662

4,674

13.0%

14.2%

14.6%

14.4%

14.9%

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

15.5%

0

1,000

2,000

3,000

4,000

5,000


(Rs mn)

EBITDA EBITDA margins(RHS)

1,032

11,870

2,639

9,381

1,627 2,204

1,056 1,103

2.21.7

2.1

4.8

6.2

7.2

8.4

9.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-

2,500

5,000

7,500

10,000

12,500

FY09 FY10 FY11 FY12E FY13E FY14E FY15E FY16E

(%)(mn)

Capex RoCE (RHS)

76.5% 81.5% 81.5% 81.5%

5.2%5.5% 6.3% 7.4%

1.3%2.7% 2.0% 1.7%

17.0% 10.3% 10.2% 9.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun-10 Sep-10 Dec-10 Mar-11

Promoter FII DII Others


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