Nomura has downgraded Fortis Healthcare Ltd. to ‘Neutral’ from its earlier ‘Buy’ and slashed its target price from Rs 211 to Rs 177 -- lowest by any brokerage tracking the stock.
The brokerage house said that the healthcare major’s revenue growth has remained muted over the past two years as the industry is seeing slowdown in both the hospitals and the diagnostics segments.
With increased competition and pricing pressure, we reduce our long-term expectations for growth and margins. We now expect long-term the earnings before interest, tax, depreciation and amortisation (EBITDA) margins for SRL at 25 percent, compared to earlier 30 percent.Saion Mukherjee, Pharma Analyst, Nomura
The brokerage has lowered its EBITDA estimates by 20-25 percent for the next two years on high operating leverage.
Despite the near-term concerns, Nomura said Fortis could be an attractive acquisition target, given its pan-India presence in both the hospitals and the diagnostics segments. This should prevent any material correction in the stock from current levels, it said.
“In the hospitals segment, the financial year 2016-17 growth at 10 percent was below our estimate, and management guidance suggests only a marginal acceleration in the current financial year,” Mukherjee added.
On SRL, Mukherjee said growth rate over the past three years has been slower and below that of Dr Lal Pathlabs and Thyrocare. Even though the EBITDA margin has improved over the past five years, but it is still lower compared with industry peers.
On the hospital business, Nomura said revenue growth has been rather muted at 7-10 percent over the past two years on back of slowdown in the industry.