>Fortis Healthcare: No Major Surprise in FY10, All Eyes on Parkway

■ FY10 Results No Major Surprise; All Eyes on Parkway — We believe Fortis' response to Khazanah's open offer for Parkway will have a greater bearing on Fortis' valuations than results, which were disappointing at the EBIDTA level.

■ 4Q: Revenues Strong, Margins Disappoint — Recurring PAT at Rs272m was ahead of expectations, though largely on the back of lower than expected tax rate. Revenue growth (+91% YoY), on the back of Wockhardt acquisition, was impressive, but the margin decline (-73 bps YoY & 106 bps QoQ) was a surprise, especially as Wockhardt boasted of significantly higher margins than Fortis’ own hospitals. Interest costs ballooned (+245% YoY) due to loans used to finance the Wockhardt acquisition, but were cancelled out by the income earned on the cash from the rights issue. This along with the lower tax rate led to a 470% PAT growth.

■ FY10: A Transitionary Year — FY10 remains a transitionary year as the full impact of the Wockhardt acquisition and the recent stake acquisition in Parkway will be reflected only in FY11 financials. Recurring PAT was at Rs695m (+376% YoY) driven by strong growth in Fortis’ own hospitals and the acquisition of Wockhardt hospitals in end CY09 as well as the low base. EBITDA margins expanded 140bps YoY due as newer hospitals turned profitable. Numbers were skewed by 4Q results which accounted for more than a third of FY10 topline and bottomline.

To read the full report: FORTIS HEALTH CARE