Fortis Healthcare margin expansion outlook supported by bed ramp-up and hospital acquisitions

Investment View and Key Drivers

In its August 08, 2026 Q1FY27 result update, Prabhudas Lilladher maintained its BUY rating on Fortis Healthcare. The investment case is based on further hospital-margin expansion, supported by an improving case and payor mix, cost-rationalisation initiatives, ramp-up at Manesar and Greater Noida, and brownfield bed additions.

Prabhudas Lilladher also expects the People Tree Hospital and Shrimann Hospital acquisitions, along with the Gleneagles operating-and-management agreements, to support margins. The broker expects Fortis Healthcare to deliver a 20 per cent EBITDA CAGR, excluding ESOP costs, over FY26-FY28E.

Q1FY27 Financial Performance

Fortis Healthcare reported Q1FY27 consolidated revenue of Rs 25,450 million, up 18 per cent year on year and 8 per cent quarter on quarter, broadly in line with Prabhudas Lilladher's estimate. Hospital revenue rose 19 per cent year on year to Rs 21,870 million, while diagnostic revenue increased 9 per cent to Rs 3,580 million. Revenue growth was largely driven by approximately 700 net bed additions year on year.

Hospital occupancy rose 100 basis points quarter on quarter to 69 per cent but was flat year on year. Average revenue per occupied bed improved 3 per cent year on year and 6 per cent quarter on quarter to Rs 74,300 per day.

Consolidated EBITDA adjusted for ESOP charges was ahead of Prabhudas Lilladher's Rs 5,600 million estimate. However, consolidated margin adjusted for ESOP costs declined around 30 basis points year on year and 20 basis points quarter on quarter to 22.3 per cent. Hospital operating margin declined 60 basis points year on year to 21.5 per cent, while diagnostic margin expanded around 120 basis points to 27.1 per cent.

Net debt fell Rs 1,000 million quarter on quarter to Rs 22,300 million. ESOP cost was Rs 310 million in Q1FY27 and is expected to remain elevated through FY27.

Margin Expansion and Capacity Outlook

Management reiterated its target of a 25 per cent EBITDA margin by FY28, including ESOP costs. It expects new hospitals to shift from an approximately 40-basis-point negative margin impact to a positive contribution of around 100 basis points. This improvement is expected to be supported by doctor and team ramp-up, normalisation of one-off legal costs, improved government and TPA collections, and higher occupancy at BG Road and Mulund.

Fortis Healthcare plans to add 1,800 beds over four years and has 200 beds ready for launch at FMRI. Management expects a further 200-300 basis-point improvement in occupancy as newer units mature.

Manesar and Greater Noida

• At Manesar, 187 beds were operational at around 60 per cent occupancy. Radiation oncology is expected to be commissioned by November 2026, and management targets a mid-teen EBITDA margin by FY27-end.
• Greater Noida reported a 10 per cent EBITDA margin. Management expects margins to reach the mid-teen level by FY27-end as revenue and occupancy ramp up.

Operating-and-Management Agreements

Fortis Healthcare entered Cuttack through an operating-and-management agreement for a 300-bed greenfield hospital. Five Gleneagles hospitals, excluding Mumbai, operate under the operating-and-management model. Stabilisation is expected over the next two to four quarters, with a 3 per cent management fee on revenue and approximately Rs 60 million recognised in Q1FY27.

Management stated that these contracts do not include a call option.

Agilus and Oncology Performance

Agilus processed 10.05 million tests and added around 200 touchpoints, taking its network to 4,493. Its B2C:B2B mix was 53:47, compared with management's B2C target of 55-58 per cent. Management expects growth to accelerate after the brand transition and network rationalisation stabilise.

Oncology growth moderated to around 5 per cent due to ECHS and CGHS chemotherapy pricing. Management guides for 10-12 per cent growth, supported by capacity additions.

Estimates and Valuation

Prabhudas Lilladher reduced its FY27E and FY28E EBITDA estimates by 6.9 per cent and 5.2 per cent, respectively, and its EPS estimates by 10.6 per cent and 7.3 per cent, respectively. EBITDA estimates excluding ESOP costs were broadly unchanged.

The Rs 1,120 target price is based on valuing the hospital segment at 30 times FY28E EV/EBITDA. At the report CMP, the broker calculated that Fortis Healthcare traded at 25 times FY28E EV/EBITDA after adjusting for the Agilus stake and ESOP costs.