Fortis Healthcare Limited — Q3 FY25 earnings call

Call held 10 Feb 2025

Management summary

Fortis Healthcare delivered a strong Q3 FY25, primarily driven by robust performance in its Hospital business, which saw significant revenue and EBITDA growth, improved occupancy, and ARPOB. The Diagnostics segment, however, experienced more modest growth, with margins still affected by rebranding costs. The company also strengthened its balance sheet by consolidating its stake in Agilus and maintaining a healthy debt profile, while continuing its portfolio rationalization strategy.

Highlights

  • Consolidated top line of INR 1,928 crores, a growth of 14.8% over Q3 FY24.

  • Hospital business revenues grew 16.8% to INR 1,623 crores.

  • Consolidated operating EBITDA increased 32% to INR 375 crores, delivering a margin of 19.4% versus 16.9% in Q3 FY24.

  • Hospital business operating EBITDA improved by 200 basis points to 20% in Q3 FY25.

  • Consolidated reported profit after tax before exceptional item increased 82.2% to INR 231 crores.

  • Hospital occupancy improved to 67% compared to 64% in Q3 FY24, and ARPOB increased 9.9% to INR 2.45 crores per annum.

  • Net debt-to-EBITDA stood at a healthy 0.41x as on December 31, 2024.

Concerns

  • Diagnostic business growth was slower at 3.5% YoY, with revenues at INR 342.3 crores.

  • Manesar greenfield facility incurred an operating loss of INR 12-13 crores during the quarter.

  • Rebranding expenses for Agilus Diagnostics continued to impact reported margins, though expected to taper off.

Key financials

  1. Consolidated Revenue ₹1,928 Cr +14.8%YoY
  2. Consolidated Operating EBITDA ₹375 Cr +32%YoY
  3. Consolidated Operating EBITDA Margin 19.4%
  4. Consolidated PAT (pre-exceptional) ₹231 Cr +82.2%YoY

What they filed

Q1 FY27: revenue up 17.4%, net profit up 2.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,988 1,928 2,007 2,167 2,331 +17%2,265 +17%2,365 +18%2,545 +17%
EBITDA435 375 435 491 556 +28%506 +35%532 +22%537 +9%
Net profit193 254 188 267 329 +70%197 −22%271 +44%273 +2%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹1,965.3 Cr Total
  • Hospital Business ₹1,623 Cr 82.6%
  • Diagnostic Business ₹342.3 Cr 17.4%

Capital allocation

high confidence
  • Capex ₹900 Cr
    • Expansion-related ₹600 Cr
    • Maintenance ₹300 Cr
    So, capex for all the brownfield projects that we are moving forward and there is a capex requirement for normal maintenance also. So, total capex need for a year is around INR 900 crore, which includes expansion-related need of around INR 600 crore and INR 300 crore is basically maintenance capex.
  • Debt Gross ₹2,300 Cr · Net ₹2,000 Cr · 0.4× EBITDA
    • New borrowing Raised through issuance of nonconvertible debentures ₹1,550 Cr
    Our net debt stands at INR 644 crores as on December 31, 2024. In December 2024, we successfully raised INR 1,550 crores through the issuance of nonconvertible debentures, leveraging these funds along with internal accruals, we consolidated our stake in Agilus by acquiring 31.52% stake from our private equity investors. As a result, our company now holds a commanding 89.2% equity stake in Agilus as on date. ... So after acquiring private equity stake, our gross debt is around INR 2,300 crores at consol level and net debt of around INR 2,000 crores.
  • M&A Agilus Diagnostics Limited Acquisition · Closed

    Consolidate stake in Agilus

    Acquired 31.52% stake from private equity investors, increasing Fortis's holding to 89.2%.

    In December 2024, we successfully raised INR 1,550 crores through the issuance of nonconvertible debentures, leveraging these funds along with internal accruals, we consolidated our stake in Agilus by acquiring 31.52% stake from our private equity investors. As a result, our company now holds a commanding 89.2% equity stake in Agilus as on date.
  • M&A Richmond Road Hospital (Bangalore) Divestment · Closed

    Portfolio rationalization, improving overall profitability and margins. The facility incurred INR 8 crore EBITDA level loss last year.

    This is the third facility divested by the company, following Malar and Vadapalani facilities in Chennai.

    Continuing with the portfolio rationalization strategy, we divested business operations of Richmond Road Hospital in Bangalore in December of 2024. This divestment supports our focus on improving overall profitability and margins. This is the third facility divested by the company after the divestment of Malar facility and Vadapalani facility in Chennai. ... it is a very small facility. It has been incurring losses for quite some time, which we tried to revive, could not do that. Now, as per the last year financial, it has incurred around INR 8 crore EBITDA level loss last year. So that much benefit we will be getting in the forthcoming years.

Guidance & targets

Margin

  • Hospital Business Operating Margin Margin · FY25 · High confidence 20.5%
    Yes. So we are maintaining our margin guidelines where we have said for the current financial year, we should be for Hospital business around 20.5%

    — Vivek Goyal

  • Diagnostic Business Operating Margin Margin · FY25 · High confidence 21-22%
    and for the Diagnostic business around 21%, 22%.

    — Vivek Goyal

  • Hospital Business Operating Margin Margin · sooner than later · Medium confidence 25%
    Yes, we are targeting margin expansion. And hopefully, we'll be seeing margin improvement year-on-year. So our ultimate target is to reach to 25% sooner than later.

    — Vivek Goyal

Volume

  • ARPOB Growth Volume · going forward · High confidence 5-6%
    I will say ARPOB growth will be in the range of 5% to 6% going forward.

    — Vivek Goyal

Revenue

  • Hospital Business Revenue Growth Revenue · year-on-year · High confidence 14%
    And our revenue growth should be somewhere around 14% year-on-year.

    — Vivek Goyal

  • Medium-term Revenue Growth Revenue · medium-term · High confidence 14-15%
    Understood. So 14% to 15% kind of medium-term growth is what you're guiding to, right, Vivek? Yes.

    — Vivek Goyal

Profitability

  • Manesar Breakeven Revenue Profitability · Q1 FY26 · High confidence INR 9 crores per month
    breakeven point will be somewhere around INR 9 crores per month. ... Neha, we are targeting this by first quarter next year. ... Yes, June, September quarter, it should be breakeven.

    — Vivek Goyal

Growth

  • Agilus Diagnostics Overall Growth Growth · Q2/Q3 next year · High confidence 8-10%
    So, I think we will be able to come back to the growth momentum in terms of industry by the second or third quarter of next year itself. ... That would be closer to 10%? Correct. ... growth, what we are expecting somewhere around second quarter of next year is about 8% to 10% kind of overall growth

    — Anand Kuppuswamy

Tax Rate

  • Consolidated Tax Rate Tax Rate · next quarter / next year · High confidence 25%

    Previously 9% → 25%

    Okay. So next quarter, the tax rate should go back to around 25%? Yes, you're right. ... Okay. And going forward, next year also likely around 25%? Yes, yes.

    — Vivek Goyal

Capacity

  • Bed Additions (Brownfield) Capacity · year-on-year · High confidence 350-400 beds
    Yes. So we are estimating around this number, 350 to 400 type of number year-on-year.

    — Vivek Goyal

What to watch in Q4 FY25

Manesar Facility Breakeven

Q1 FY26 (June-September quarter)
Current Operating loss of INR 12-13 crores/quarter
Target Breakeven at INR 9 crores/month revenue

Why it matters

Verifying the profitability turnaround of the newly operational greenfield facility is crucial for overall hospital segment margins.

So Manesar facility, we have started almost at the beginning of this quarter. So, it is currently contributing around INR 5 crores per month revenue. And I think breakeven point will be somewhere around INR 9 crores per month. ... Neha, we are targeting this by first quarter next year. ... Yes, June, September quarter, it should be breakeven.

Risks & concerns

  • Impact of Agilus Rebranding Expenses

    medium

    The Diagnostic business performance is still adjusting to the impact of Agilus rebranding exercise, which involved extensive rebranding efforts and associated marketing costs. Management expects the branding expense to taper off towards the end of this financial year.

    Management acknowledged

  • Ongoing Legal Costs for Fortis Brand and Open Offer

    medium

    Legal processes related to the Fortis brand acquisition and the stalled open offer are ongoing, with management expecting 'significantly higher legal costs' in the early part of next year before they start coming down.

    Analyst acknowledged

  • Talent Acquisition and Retention in Healthcare

    low

    An analyst raised concerns about a 'war for clinicians' and talent retention. Management acknowledged it as an ongoing 'battle' but stated it's less severe for Fortis due to brownfield expansion requiring less new clinical talent compared to greenfield.

    Analyst acknowledged

Q&A highlights

8 direct
Manesar Greenfield Expansion Losses and Breakeven Direct
So Manesar facility, we have started almost at the beginning of this quarter. So, it is currently contributing around INR 5 crores per month revenue. And I think breakeven point will be somewhere around INR 9 crores per month. ... Neha, we are targeting this by first quarter next year. ... Yes, June, September quarter, it should be breakeven.

Analyst sought clarity on the financial performance of the new Manesar facility, which is currently loss-making, and management provided specific targets for revenue and breakeven timeline, crucial for understanding future profitability.

Asked by Neha Manpuria

Impact of Richmond Road Facility Divestment Direct
Yes, it is not that much because as you rightly said, it is a very small facility. It has been incurring losses for quite some time, which we tried to revive, could not do that. Now, as per the last year financial, it has incurred around INR 8 crore EBITDA level loss last year. So that much benefit we will be getting in the forthcoming years.

Analyst questioned the financial benefit of divesting a small facility. Management clarified that despite its size, the facility was loss-making (INR 8 crore EBITDA loss last year), and its divestment will contribute positively to future profitability.

Asked by Neha Manpuria

Agilus Diagnostics Growth Momentum and Timeline Direct
So, I think we will be able to come back to the growth momentum in terms of industry by the second or third quarter of next year itself. ... That would be closer to 10%? Correct. ... growth, what we are expecting somewhere around second quarter of next year is about 8% to 10% kind of overall growth

Analyst probed the timeline for Agilus Diagnostics to achieve industry-level growth post-rebranding. Management provided a clear expectation of reaching 8-10% growth by Q2/Q3 of next year, indicating a recovery path for the diagnostics segment.

Asked by Neha Manpuria

Drivers of ARPOB Growth Direct
So, Shyam, we have said in our commentary for last many quarters that we expect that the ARPOB growth should taper off a little bit, and it should probably be somewhere close to 6%, 7%. But it has been better than our expectation. And the reasons for that for us is primarily case mix. Out of this 9%, just maybe about 1.5% or so will be because of the price revisions. ... As I was pointing out that some of the specialties like bone marrow transplants, et cetera, the growth has been as high as above 40%. And those are typically high ticket items. So that has led to this kind of growth. But I think we would expect that this kind of trend will persist for some more time, and we should see similar ARPOB going into the next couple of quarters as well.

Analyst sought to understand the factors behind the strong ARPOB growth. Management attributed it mainly to a favorable case mix (high-ticket specialties) and a minor portion to price revisions, providing insight into the quality of hospital revenue growth.

Asked by Shyam Srinivasan

Path to Higher Hospital Margins (25%) Direct
So I think one is, this brownfield bed expansion and availability of the bed because as I mentioned earlier also, these capacities are coming in the units which are already operating at 75%, 80% occupancy. So we see less challenge in filling those beds. That is number one. Number two, the existing hospital - some of our existing hospitals are still operating at a low occupancy level. These are big hospital, very good location, very good clinical talent we have in those and good equipment. So I think when these hospitals will also grow in terms of occupancy, that should add to the EBITDA margin. And so, these are the 2 basic levers which I am banking upon on the EBITDA margin improvement, which will provide us overall efficiency in the cost and other things.

Analyst questioned how the company plans to achieve its aspirational 25% hospital margin. Management outlined two key levers: brownfield expansion in high-occupancy units and improving occupancy in currently underutilized large hospitals, providing a clear roadmap for margin expansion.

Asked by Shyam Srinivasan

Aggressiveness in Expansion vs. Competitors Direct
No. The answer is very clear that we are here for good quality assets, which fit into our regional cluster strategy, as well as it is a value acquisition. So, we are going on that path, and we certainly are very active in the market evaluating some of these opportunities, and we would certainly be looking at creating some of these things pretty soon. We do have some things in the pipeline, which we are evaluating, and we would come back at the right time to inform you about them. ... We are looking at land as well because there are certain areas where we are seeing a lot of development and we feel that there is a future potential, whereas no assets would be available in those geographies. So in such areas, we are scouting for land as well.

Analyst inquired about Fortis's expansion strategy compared to more aggressive competitors. Management affirmed their active pursuit of 'good quality assets' and land for greenfield development aligned with their cluster strategy, indicating a selective but active growth approach.

Asked by Bino Pathiparampil

Duration of Agilus Rebranding Expenses Direct
We had planned to spend about INR 50 crores on rebranding this year. So I think over the last quarter and maybe a little bit flow through into next quarter may happen. So it will be in Q4 is what the major balance will happen in the Q4 respect. ... We have as such not planned anything as of now. So we will as of now, there's no one-off expenses planned. It will be part of the regular budget. But in case if we are having any carryover from this, we'll be doing it in the first quarter of next year.

Analyst sought clarity on when the rebranding expenses impacting Agilus's margins would cease. Management provided a timeline, expecting the bulk to be in Q4 FY25 with potential carryover to Q1 FY26, which is important for forecasting diagnostic segment profitability.

Asked by Bino Pathiparampil

Low Consolidated Tax Rate in Q3 FY25 Direct
Yes. So we have created deferred tax asset on certain unabsorbed losses accumulated for one of our subsidiary. Actually, if you might be knowing 3 years back, we have stopped recognizing deferred tax asset till we see the visibility of profitability. Now it is clearly visible. So this quarter, we have booked a deferred tax asset of around INR 27 crores. So that is the only anomaly this quarter. ... Okay. So next quarter, the tax rate should go back to around 25%? Yes, you're right.

Analyst questioned the unusually low 9% consolidated tax rate. Management explained it was due to a one-time booking of a deferred tax asset of INR 27 crores and confirmed the rate would normalize to around 25% in the next quarter, clarifying a significant financial anomaly.

Asked by Bino Pathiparampil

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Detailed narrative

Robust Hospital Business Performance Drives Q3 FY25 Growth

Fortis Healthcare's Q3 FY25 performance was largely driven by its Hospital business, which reported a 16.8% year-on-year revenue growth to INR 1,623 crores. The segment's operating EBITDA margin improved by 200 basis points to 20%, contributing significantly to the consolidated operating EBITDA of INR 375 crores (up 32% YoY). Key metrics like occupancy rate increased to 67% from 64% in Q3 FY24, and ARPOB saw a 9.9% increase, reaching INR 2.45 crores per annum, reflecting strong operational efficiency and a favorable case mix.

Diagnostics Segment Navigates Rebranding Challenges

The Diagnostic business (Agilus) recorded a 3.5% year-on-year revenue growth, reaching INR 342.3 crores in Q3 FY25. While operating EBITDA improved to INR 49 crores (14.4% margin) from INR 33 crores (10% margin) in Q3 FY24, the segment's performance was still impacted by extensive rebranding efforts and associated marketing costs. Excluding these one-off expenses, the adjusted operating EBITDA margin stood at a healthier 21.3%. Management anticipates these rebranding expenses to taper off towards the end of the financial year, with a target of 8-10% growth by Q2/Q3 next year.

Strategic Portfolio Rationalization and Capacity Expansion

Fortis continued its portfolio rationalization strategy by divesting the Richmond Road Hospital in Bangalore in December 2024, a small facility that had incurred an INR 8 crore EBITDA level loss last year. This divestment is part of a broader strategy to improve overall profitability. Concurrently, the company is focused on brownfield expansion, with plans to add 350-400 beds year-on-year. The Manesar greenfield facility, which became operational this quarter, incurred an operating loss of INR 12-13 crores but is targeted to breakeven by Q1 FY26 at INR 9 crores per month revenue.

Strengthened Balance Sheet and Agilus Stake Consolidation

The company maintained a healthy balance sheet with a net debt-to-EBITDA ratio of 0.41x as of December 31, 2024. In December 2024, Fortis successfully raised INR 1,550 crores through non-convertible debentures. Leveraging these funds and internal accruals, Fortis consolidated its stake in Agilus by acquiring an additional 31.52% from private equity investors, increasing its total equity holding to 89.2%. Post this acquisition, the gross debt stands at INR 2,300 crores and net debt at INR 2,000 crores at the consolidated level.

Key Specialties and Digital Channels Drive Growth

Growth in the Hospital business was significantly driven by key specialties such as Oncology (30% growth), Neurosciences (18% growth), Cardiac Sciences, Gastroenterology, Orthopedics, and Renal Sciences, which collectively contributed 62% to the overall Hospital business revenue. International business revenue grew 17% to INR 132 crores, maintaining an 8% contribution. Digital channels also played a crucial role, with revenues from website, mobile applications, and digital campaigns growing 36% year-on-year and contributing 29.9% to overall hospital revenues in Q3 FY25.

Outlook on Margins, Growth, and Capital Expenditure

Management provided guidance for FY25, targeting a Hospital business operating margin of around 20.5% and a Diagnostic business margin of 21-22%. For the medium term, ARPOB growth is expected to be in the 5-6% range, and overall hospital revenue growth around 14-15% year-on-year. The total annual capex requirement is estimated at INR 900 crores, with INR 600 crores allocated for expansion and INR 300 crores for maintenance. The consolidated tax rate, which was 9% this quarter due to a deferred tax asset booking, is expected to normalize to around 25% next quarter.

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