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Fortis Healthcare (India) Ltd
Enhancing investment decisions
Initiating coverage
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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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 2
Fortis Healthcare (India) Ltd
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 3
Fortis Healthcare (India) Ltd
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
Source: Company, CRISIL Research
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 4
Fortis Healthcare (India) Ltd
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
Source: Company, CRISIL Research Source: Company, CRISIL Research
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)
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 5
Fortis Healthcare (India) Ltd
… 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)
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 6
Fortis Healthcare (India) Ltd
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 7
Fortis Healthcare (India) Ltd
Figure 8: Fortis has grown aggressively through acquisitions
Source: CRISIL Research
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 8
Fortis Healthcare (India) Ltd
Figure 9: Margins improved at Escorts, Jaipur Figure 10: Fortis Malar had strong revenue growth
Source: Company, CRISIL Research Source: Company, CRISIL Research
Figure 11: Revenues and margins grew at Escorts,
Amritsar
Figure 12: Steady run post FY08 hurdle at Escorts,
Delhi
Source: Company, CRISIL Research Source: Company, CRISIL Research
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)
Revenue EBITDA margins (RHS)
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
FY07 FY08 FY09 FY10 FY11
(Rs mn)
Revenue EBITDA margins (RHS)
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
FY07 FY08 FY09 FY10 FY11
(Rs mn)
Revenue EBITDA margins (RHS)
Fortis to add ~1,400
beds in the next two-
three years
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 9
Fortis Healthcare (India) Ltd
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
Source: Company, CRISIL Research
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 10
Fortis Healthcare (India) Ltd
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
Source: Company, CRISIL Research Source: Company, CRISIL Research
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 11
Fortis Healthcare (India) Ltd
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%
Source: CRISIL Research
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 12
Fortis Healthcare (India) Ltd
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 13
Fortis Healthcare (India) Ltd
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 14
Fortis Healthcare (India) Ltd
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%
Source: Company, CRISIL Research
Figure 18: Revenue break-up from major hospitals Figure 19: SRL to contribute 25% in FY13
Source: Company, CRISIL Research Source: Company, CRISIL Research
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%
FY09 FY10 FY11 FY12E FY13E
Escorts, Delhi Fortis, Mohali Oncology Block, Mulund
Fortis, Noida Wockhardt Others
100% 100% 100%
77% 75%
23% 25%
0%
20%
40%
60%
80%
100%
FY09 FY10 FY11 FY12E FY13E
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 15
Fortis Healthcare (India) Ltd
Figure 20: EBITDA margin to remain stable
Source: Company, CRISIL Research
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
Source: Company, CRISIL Research
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
FY09 FY10 FY11 FY12E FY13E
(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
FY09 FY10 FY11 FY12E FY13E
(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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 16
Fortis Healthcare (India) Ltd
Figure 22: RoCE to improve post commissioning of new beds
Source: CRISIL Research
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)
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 17
Fortis Healthcare (India) Ltd
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 18
Fortis Healthcare (India) Ltd
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 19
Fortis Healthcare (India) Ltd
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 20
Fortis Healthcare (India) Ltd
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
100
150
200
250
300
Apr-
09
Jun-
09
Aug
-09
Oct
-09
Dec-
09
Feb-1
0
Apr-
10
Jun-
10
Aug
-10
Oct
-10
Dec-
10
Feb-1
1
Apr-
11
Jun-
11
(Rs)
Fortis 32x 40x 48x 56x 64x
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
Apr-
09
Jun-
09
Aug
-09
Oct
-09
Dec-
09
Feb-1
0
Apr-
10
Jun-
10
Aug
-10
Oct
-10
Dec-
10
Feb-1
1
Apr-
11
Jun-
11
(Rs mn)
EV 12x 22x 32x 42x
200%
400%
600%
800%
1000%
1200%
Apr
-09
Jun-0
9
Aug-
09
Oct
-09
Dec
-09
Feb
-10
Apr
-10
Jun-1
0
Aug-
10
Oct
-10
Dec
-10
Feb
-11
Apr
-11
Jun-1
1
Premium/Discount to NIFTY Median premium/discount to NIFTY
20
30
40
50
60
70
80
Apr
-09
Jun-0
9
Aug-
09
Oct
-09
Dec
-09
Feb
-10
Apr
-10
Jun-1
0
Aug-
10
Oct
-10
Dec
-10
Feb
-11
Apr
-11
Jun-1
1
1yr Fwd PE (x) Median PE
+1 std dev
-1 std dev
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 21
Fortis Healthcare (India) Ltd
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 22
Fortis Healthcare (India) Ltd
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)
Source: Company, CRISIL Research
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 23
Fortis Healthcare (India) Ltd
Annexure: Financials
#FY11 numbers based on the abridged financials
Source: CRISIL Research
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
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 24
Fortis Healthcare (India) Ltd
Focus Charts
India has lowest per capita spend on healthcare Fortis has grown aggressively through acquisitions
Source: Company, CRISIL Research Source: Company, CRISIL Research
Revenue break-up from major hospitals EBITDA margin to remain stable in near term
Source: Company, CRISIL Research Source: Company, CRISIL Research
RoCE to grow post commissioning of new beds Shareholding pattern over the quarters
Source: Company, CRISIL Research Source: Company, CRISIL Research
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%
FY09 FY10 FY11 FY12E FY13E
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
FY09 FY10 FY11 FY12E FY13E
(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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