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Fortis Healthcare’s profit jumps, even as profitability dips

Fortis Healthcare’s profit jumps, even as profitability dips
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First Published: Tue, Feb 08 2011. 10 16 PM IST
Updated: Tue, Feb 08 2011. 10 16 PM IST
Aweek ago, Fortis Healthcare Ltd told bourses it is seeking shareholder approval for a change in name to Fortis Healthcare (India) Ltd to reflect its focus on the country while the group pursues global opportunities separately.
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Its country focus does not appear to be a limiting factor, judging by its December quarter performance.
The company is utilizing a dual strategy for growth: setting up hospitals either by building them or through acquisitions, and entering into management contracts for existing hospitals.
During the quarter, operating revenue rose by about 60% to Rs371 crore over the year-ago period and was up by about 4% sequentially.
Organic growth was about 23%, which is healthy, but lower than the 27% growth seen in the September quarter.
Operating profit margin declined by about 80 basis points due to the start-up costs for its new hospitals. Net profit rose by 59% to Rs35 crore and would have been about Rs46 crore, but for the new hospitals commissioned. One basis point is one-hundredth of a percentage point.
While the new hospitals have an adverse effect on margins, by acquiring running hospitals or taking on management contracts, Fortis has been able to accelerate growth. Management contracts also allow it to limit capital investments.
Still, it has a sizeable capacity addition plan, with about four new hospitals coming up in fiscal 2012, adding about 900 more beds. This will add to its current capacity of about 4,500 beds, of which 2,800 are owned and the rest are part of its network.
Fortis is still in the early stages of its strategy, as it goes about adding capacity, which will give the zing to revenue growth, even as organic growth provides stability to profitability and profit growth.
A key positive is that new hospitals are doing much better than its own expectations, which is not surprising, given the shortage of good hospitals in a country whose population, income and disease burden are all on the rise.
Fortis expects the healthcare market to rise by about 15% in the foreseeable future. It is growing much faster than that by taking share from other providers in the market.
Even if margins dip a little, if the company can deliver earnings growth of 60%, as it has in the December quarter, shareholders will be pleased, as is visible from the 5% jump in its share price, while its peers fell by 1.3%.
Graphic by Paras Jain/Mint
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First Published: Tue, Feb 08 2011. 10 16 PM IST