Shares of Fortis Healthcare Ltd gained 2.8% in Wednesday morning trade after the company’s June quarter results showed continued recovery. Revenues at the mainstay India hospital business grew 11.3% from the year ago, better than 5.8% growth clocked by the company in the March quarter.
Profitability at key hospitals improved. Average revenue per occupied bed improved 2.6% to ₹1.57 crore per annum, implying better patient and treatment mix. Add to this the accounting change and elimination of a service fee due to purchase of RHT assets, the India hospital business swung back to profit at operating level, compared to loss in the year ago.
Operating profit margin at diagnostic business saw notable improvement. “Fortis Healthcare's Q1 results signify the momentum that we continue to see in our business with both the hospital and the diagnostic business having witnessed a healthy improvement in performance. Our liquidity position has further strengthened, and we continue to undertake various measures to improve our cash flows," Ashutosh Raghuvanshi, managing director and chief executive officer, Fortis Healthcare said in a statement.
The performance is not that rosy when compared to March quarter. Occupancy and revenues dropped sequentially. Average length of stay of patients saw a notable fall. Even so, much of the sequential slowdown is attributed to season factors. “Quarter on quarter (sequential) margin contracted in the hospital business, as Q1 is a seasonally weak quarter along with some higher cost. Occupancy was at 66% in Q1 vs 68% in Q4FY19; however, it is seeing a ramp-up in Q2," analysts at Elara Securities (India) Pvt. Ltd.
The company is investing in new treatment technologies and capacity expansion which would weigh on profitability in near term as new facilities take time to attain scale. While a part of this impact can be absorbed by the cost rationalization measures the new management is implementing, much depends on the pace of recovery in the key business segments, namely hospitals and diagnostics. “Our rating for stock has been under review since Q1FY19 given the legal dispute between Fortis erstwhile promoters and Daiichi along with balance sheet irregularities. However new management & resolution of promoter issues and improving financials cause us to resume coverage with accumulate rating," analysts at Elara add.