Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fortis Healthcare Ltd (BOM:532843, Financial) reported a consolidated top line growth of 12.3% year-over-year, reaching INR1,988 crore in Q2 FY2025.
- The hospital business revenues increased by 13.9% to INR1,655 crore, with an operating EBITA margin improvement from 18.4% to 21.4%.
- The diagnostic business also saw a revenue increase to INR372 crore, with operating EBITA margins improving to 21.5% from 17.2% in the previous year.
- Hospital occupancy improved to 72%, translating into a 5.8% increase in occupied beds, driven by growth in key specialties like oncology and neurosciences.
- The company is making significant progress in digitalization, with digital revenue contributing 29.3% to overall hospital revenue, up from 25.6% in the previous year.
Negative Points
- Despite improvements, the diagnostic business growth remains a challenge, with only a 3.4% increase in revenue year-over-year.
- Legal costs have been higher this year due to more hearings, impacting overall profitability.
- Some hospitals are still operating below 10% EBITA margins, with challenges in improving performance in certain facilities.
- The company is facing seasonal impacts on hospital occupancy, which may affect short-term profitability.
- The acquisition of a 31.52% stake in Agilus Diagnostics from PE investors will increase debt, potentially impacting the balance sheet.
Q & A Highlights
Q: What are the key levers for the improvement in hospital margins, and can you specify which hospitals have contributed to this improvement?
A: The main lever for margin expansion is the increase in occupancy, which has reached 72%. This has led to higher margins. Specific hospitals like Palmo and Nagar Bhavi in Bangalore have shown significant improvements, contributing to the margin expansion.
Q: Can you explain the reasons behind the stellar margins in the diagnostic segment this quarter?
A: The margin improvement in the diagnostic segment is due to enhanced network efficiencies and cost optimization. While the second quarter typically sees higher revenues, the optimization levels are expected to continue, contributing to sustained margins.
Q: How many beds are expected to be added in the second half, and what is the plan for the new facilities?
A: The Manesar facility has been operationalized, and Faridabad is expected to be commissioned later in the quarter. Additionally, FMRI will add 20-25 beds, with major benefits expected in the fourth quarter.
Q: What is the expected sustainable margin for the diagnostic business in the future, and when will the stake purchase from private equity be completed?
A: The diagnostic business aims for margins in the range of 25-26% by FY2027 or FY2028. The stake purchase from private equity is progressing well, with completion expected by the end of the month.
Q: How will the balance sheet look post the stake increase in Agilus, and is this the best use of capital?
A: The balance sheet will remain healthy, with net debt to EBITDA expected to be below 1.5 by year-end. The stake increase is seen as a good use of capital due to the potential of Agilus, and it does not compromise the hospital business's growth plans.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
