Fortis Healthcare Q3 Review: Hospitals Drive Growth, Diagnostics Face Slowdown, Says Nomura

Fortis Healthcare Ltd.'s third quarter performance showed a mixed picture with overall revenue surpassing estimates, but facing challenges in certain segments. The company's hospital division experienced strong growth, driven by higher ARPOB and occupancy rates, while the diagnostics business struggled with slower growth and higher branding expenses, Nomura said in its note on Monday.

Looking at Fortis Healthcare results of the December quarter, Nomura maintained its 'buy' rating with a target price of Rs 700.

Nomura's analysis of Fortis Healthcare for quarter ended December highlights a 2% revenue beat, driven by hospital revenues, which were 3% higher than expected. Diagnostic segment revenues aligned with Nomura's estimates, but consolidated Ebitda was 3% below expectations due to one-time branding-related expenses in diagnostics.

Hospital Ebitda met the brokerage's forecasts with a 200bps year-on-year margin expansion, while net earnings surpassed estimates by 19%, supported by lower taxes and exceptional gains from the sale of Richmond Road hospital in Bangalore.

The hospital segment saw 16.8% year-on-year revenue growth, driven by a 9.9% increase in ARPOB and 6.2% growth in occupied beds. Oncology was a key growth driver, rising 30% year-on-year. Occupancy reached 67% from 64% year-on-year, with scheme patients contributing 12.3% of total revenue. However, the company aims to reduce the contribution from scheme patients, as occupancy improves with new capacity additions.

International patient revenue grew by 17% year-on-year, in line with overall hospital revenue growth. Despite a slight dip in Ebitda margin to 20% due to seasonal volume declines, the company’s capacity expansion is on track with several new facilities planned for 2025-2026.

In diagnostics, revenue growth was weak at 5.1% year-on-year, underperforming peers, with flat patient volumes. The wellness segment grew by 15%, while the specialised segment saw a 5% decline. Branding expenses impacted Ebitda margins, which stood at 14.3%, though adjusted margins were better at 21.3%.