Nomura downgrades Fortis Healthcare to neutral

Mumbai: Nomura has downgraded shares of Fortis Healthcare to 'neutral' from 'buy' and cut target price to Rs 177 from Rs 211 on concerns over growth.

The brokerage said Fortis’ revenue growth has remained muted over the past two years and that the industry is witnessing a slowdown in both the hospitals and diagnostics segments.

Moreover, Fortis trades at a significant premium to peers.

"n terms of PE, the stock trades at 56.7 times FY19F EPS of Rs2.9, vs Apollo Hospitals at 31.3 times. In terms of EV/EBITDA (adjusted) FORH trades at a 38-39% premium to APHS (Apollo Hospitals). FORH’s valuation, to a large extent, factors in a longer term revival in EBITDA margins beyond the explicit forecast period," said Nomura.

Nomura said it prefers Apollo Hospitals in the hospitals space.

"In the hospitals segment (Fortis'), FY17 growth at 10% was below our estimate, and management guidance suggests only a marginal acceleration in FY18," said Nomura.
Nomura said that it is positive on brownfield capacity additions, which should drive Fortis' growth over the next three years.