Fortis Healthcare - Balance sheet improvement key; Hold - Anand Rathi

Consolidated revenues to decline. We expect Fortis Healthcare's (Fortis) revenues (consolidated) to decline 34% yoy, due to divestment of Dental Corp. (Australia), Quality Healthcare (HongKong) and Hoan My (Vietnam). Excluding Australia, HongKong and Vietnam subsidiaries, we expect 21.1% yoy revenue growth, driven by strong growth in the India hospital business and steadily increasing revenues from other international subsidiaries. EBITDA margin is likely to drop to 7%, down 290bps yoy, due to payment of service fees and lease rentals to Religare Health Trust (RHT, owner of the company's hospital infrastructure). We expect net loss of Rs. 180m against adjusted net loss of Rs. 433m in 3QFY13.

International subsidiaries slow down. We expect contribution from international subsidiaries to reduce to 14% (of total revenues) from 53%, yoy, due to divestment of Dental Corp., Quality Healthcare and Hoan My. Business in Singapore is expected to grow at 15% yoy. The process of HongKong business divestment got over during the quarter, hence, we may see some revenues booked.

Strong show to continue in hospitals. We estimate hospitals to grow 20.9% yoy, led by more operational beds, higher occupancy and steady rise in average revenue per operating bed. Super Religare Laboratories is expected to grow at strong pace of 22% yoy, led by rise in diagnostic centres and greater number of patients.

Our take. We see the management focus back on India healthcare, which is a positive. The stock is trading at 18x FY14e and 15.5x FY15e EV/EBITDA. We maintain Hold on it, with a price target of Rs. 107. Risks. Slower ramp up in new hospitals and stretched balance sheet.

Source : Equity Bulls

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