MOSL: FORTIS HEALTHCARE (Buy)- 2Q in-line, but a miss in 3Q-Entry of third-party key for re-rating
Fortis Healthcare: 2Q in-line, but a miss in 3Q; Entry of third-party key for re-rating
(FORH IN, Mkt Cap USD1.0b, CMP INR161, TP INR185, 15% Upside, Buy)
- Fortis Healthcare (FORH) reported 2QFY18/3QFY18 revenue of INR12b (flat YoY)/INR11.2b (-1.1% YoY), with EBIDTA margin of 8.9%/4.6%. Hospital business revenue came in at INR9.7b (-0.6% YoY)/INR9b (-0.9% YoY) for 2QFY18/3QFY18, with EBITDA margin of 8.5%/5.5%. SRL reported revenue of INR2.2b (+5.2% YoY)/INR2.1b (+10% YoY), with EBITDA margin of 23.2%/18.4%. 2Q numbers were in line, but 3Q numbers missed our expectations. FORH reported a loss of INR236m/INR191m in 2Q/3QFY18.
- Promoter stake down to <1% due to invocation of pledged shares: Promoter holding is now down to 0.8% from ~34% in Dec-17 due to invocation of pledged shares. Yes Bank now is the largest shareholder, with more than 17% stake in the company. Post invocation of pledge shares, banks and financial institutions (Yes bank, Axis bank, Indiabulls) have the right to sell their shares to a third party, which can eventually become the promoter of the company.
- Auditors have raised serious issues: Auditors have raised red flags on related-party loans and inter-corporate deposits (details provided below). Consequently, they were unable to express conclusion regarding the financial statements. Notably, FORH needs to recover loan of ~INR4.7b from promoter entity. Management responded that it is confident about recovering this loan, but we see this as a concern, given the financial health of the promoter entity. SEBI investigation is ongoing related to this issue.
Fortis Healthcare Limited is an integrated healthcare delivery service provider. The Company is engaged in establishing, maintaining, operating, running, managing or administering hospitals, medicare, healthcare, diagnostic, health aids and research centers. The Company operates through the Clinical Establishments Division and the Medical Services Division. The Clinical Establishments Division owns, maintains and operates clinical establishments (being fully air conditioned institutions established, and specifically customized and duly fitted with all fixtures, fittings, certain medical equipment and infrastructure required for running and operating the hospitals), as well as provides services under outpatient division and radio-diagnostic services. The Medical Services Division undertakes the business of running the hospital operations, including in-patient services and emergency services. The Company operates its healthcare delivery services in India, Dubai, Mauritius and Sri Lanka.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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