JM Financial initiates coverage on hospital stocks, sees upside potential up to 48%
JM Financial has initiated coverage on hospital stocks Fortis Healthcare, Max Healthcare and GPT Healthcare, as it sees an upside potential of up to 48.5%.
The domestic brokerage firm has buy rating on Fortis and GPT with a target price of Rs 595 and Rs 245 respectively, while it has a hold rating on Max Healthcare with a target price of Rs 840.
The Indian hospital sector market cap surged 9x from Rs 37,500 crore in FY20 to Rs 3.5 lakh crore now. At a time when the sector was grappling with inefficiencies, high leverage and low ROCEs, Covid provided a much-needed impetus. This came from improved pricing, higher insurance coverage and dedicated shift towards complex surgeries such as transplants.
Here is how the domestic brokerage firm evaluates its preferred stocks:
Fortis Healthcare
Based on the strategic pivot of creating large-format hospitals, portfolio optimisation strategy yielding early dividends, margin expansion of 3ppt over FY 24-27, agilus’ recovery and improving ROICs, JM Financial rates the stock as a ‘buy’.
“We expect Fortis to deliver Revenue/EBITDA/PAT CAGR of 13%/19%/26% CAGR over FY24-27. Fortis is an equally strong hospital brand providing high-end medical services like the leaders in the hospital space. However, operational inefficiencies and legacy issues were the primary reasons why it was valued lower compared to peers,” said Amey Chalke, analyst at JM Financial.
Shares of Fortis Healthcare were trading at Rs 486.35 around 1 pm and the target price of Rs 595 by JM Financial signals an
