FORTIS HEALTHCARE - A MULTIBAGGER

Fortis Healthcare Limited (FHL), one of India’s largest private healthcare companies with network of 23 hospitals and more than 2600 beds has been hyperactive in acquiring stakes in Hospitals across India and is said to be eyeing Wockhardt and Manipal Hospitals.
The company is a leading player in the nascent healthcare services market that has high growth potential.The company is well placed to capitalise on the high growth potential for healthcare services.

Despite being a relatively recent entrant to the healthcare space, Fortis has used acquisitions and investments to build a strong reputation in specialised areas such as cardiac care and orthopaedics, and a sizeable scale of operations in this business. Fortis Healthcare now controls a network of 12 hospitals, of which seven are owned and the rest are under management contracts; these are located mainly in and around the National Capital Region. It also recently charted a foray into Western India by acquiring a stake in Mumbai-based Hiranandani Healthcare. The owned hospitals include Escorts Heart Institute and Research Centre (EHIRC) in Delhi, other Escorts hospitals in Amritsar and Faridabad and the Fortis Hospitals in Amritsar, Noida and Mohali. The company also operates 16 satellite "Heart Command Centres" in other hospitals. EHIRC enjoys a very strong reputation in cardiac care for its skilled doctors and efficiently-run operations. Future plans include greenfield projects in Jaipur, Delhi and Gurgaon, to scale up the current bed capacity of 1,800 by another 750 over the next two years. Plans are also afoot for further geographic expansion through acquisitions and management contracts. It recently took over the 180 bed Malar Hospitals in Chennai and launched high-end "Malar Heart Institute" there.

Demand prospects for healthcare services appear strong in the light of higher longevity and the demographic shift in the Indian population and acute shortage of hospital infrastructure (a deficit of 7.5 lakh hospital beds is estimated over the next six years). A rising incidence of lifestyle diseases and increasing penetration of health insurance, suggest that service providers may enjoy strong pricing power in the years ahead. Fortis Healthcare, as one of the two leading players in the domestic healthcare space, given its strong brand equity, is well-placed to capitalise on this opportunity.

The hospital business is highly capital-intensive, with a new facility usually taking a five-six year gestation period to break even at the net profit level. Apart from revenue per bed, profitability of a hospital depends, to a large extent, on the level of occupancy and the average length of stay for patients. Higher occupancy and a lower length of stay contribute to higher asset turnover, leading to better operating profit margins. Given that Fortis made its first foray into the healthcare space in 2001, its facilities, with the exception of the key Escorts facilities, are fairly new and, therefore, have relatively low occupancy levels at present. But the management has shown its skill and expertise in improving occupencies and earning better margins.

Financials :
The Company recently turned around and posted postive Profit After Tax for the First Quarter and reported Highest Ever EBIDTA for Sep quarter at 23.16 crores with a Growth of 44%.

Dismissal of Anil Nanda case against Escorts Heart Institute and Research Centre has mitigitated the legal risk hanging over its head since its IPO. The company is now free to execute its plans for growing the Escorts network and brand.
Fortis has the Largest Chain of NABH accredited hospitals in India. Fortis Escorts Hospital, Jaipur has also attained the distinction of being the first hospital in India to get NABH accreditation barely within 10 months of start of its operations. This is the fastest for any hospital in India.
Promoters hold about 74% stake in the Company and with the just announced Rights Issue of 1000 crores, they are sure to increase their Stake.


Risks
Business risks surrounding Fortis' operations arise from its ability to retain its skilled workforce and attract new patients at its smaller centres. Apart from this, a significant proportion of corporate clientele could result in pricing pressure as such clients may try to wrangle better rates. Given the aggressive expansion plans, there are significant execution risks to the revenue and profit projections.

CONCLUSION :
With the Promoters sitting on Huge Cash and the proposed Rights Issue giving some more cash, they can get a lot of Hospital Asset at distressed price (Wockhardt, Manipal, etc) and the Company is bound to be Multi Bagger in the years to come.

BUY



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