Nomura has kept its ‘Neutral’ rating on Fortis Healthcare and raised the target price to ₹1,030 from ₹990 after the hospital chain’s June quarter revenue beat expectations, although EBITDA did not meet the market’s forecast.
In the first quarter of FY27, sales were 3% higher than the brokerage’s estimate. However, EBITDA and EBITDA margin missed by 3% and 130 basis points, respectively.
The quarter’s performance was affected by an ESOP charge of ₹307 million, while a reversal of an impairment charge in an associate brought an exceptional gain of ₹95 million. When adjusted for these items, the profit after tax was in line with expectations.
Fortis reported a 19% year‑on‑year growth in hospital revenue, driven by facility expansion and acquisitions. Occupied beds rose by 16.7%, but the average revenue per occupied bed (ARPOB) only grew by 2.3%.
Segment EBITDA margin fell to 20.2%, a decline of 192 basis points year‑on‑year. The drop was mainly due to the ESOP charge, which accounted for 1.4% of sales, and lower margins at newly opened hospitals.
Management forecasts a 25% EBITDA margin for FY28, even after ESOP costs. Nomura’s own estimate for FY28 is 24.1%, reflecting a more conservative view.
On diagnostics, Nomura noted that operations are improving but still lag behind peers. The change in brand name was also mentioned as a factor that could dampen revenue growth.
The brokerage lowered its FY27‑28F earnings estimates by 2–12% because of higher depreciation charges, and it reduced the valuation multiple to 25× from 27.5×.
Nomura’s new target price of ₹1,030 is based on a 25× multiple of FY28‑29F average EBITDA. The firm remains cautious about a higher valuation due to insurance bargaining power, potential regulatory cost controls, rising employee and doctor costs, and the high capital intensity of the business.