Company:
Fortis Healthcare (BSE: 532843, NSE: FORTIS)
Current price:
INR 125.
Legend goes that Buffet sat at a diner one night with a hawk-eye on the register. Not with an intent of executing a heist... but to see how people paid. And it's said that that night he made the decision to invest in AMEX because people did not stop using AMEX in their day-to-day life, the recent PR disaster notwithstanding.
In the same vein I look at Fortis with interest. A few family and close acquaintances have chosen to use their facilities in the last two years. They came back with good experiences - namely smooth day-to-day operations, clean facilities, and cashless and headache-less transaction.
Why do I like it...
- Healthcare (together with transport and education) is a strategic priority for the country.
- Just like organised retail is booming, experts are touting organised healthcare to be on the cusp of a boom.
- Medical insurance is finally poised to take off in the country; there is talk of insurance portability (i.e. you can move from one insurer to another without resetting waiting periods, etc) . This means that organised healthcare (read expensive) will become more easily accessible for the “aam junta”.
- Fortis has recently initiated an effort to consolidate its Indian and international operations in seven countries in the Asia-Pacific region, including Australia, Singapore and Hong Kong. This might add further credibility to India / Fortis as a preferred ‘medical tourism’ destination... particularly if the organisation already has operations in one of the ‘first world’ countries. Or is that a huge leap of faith?
- Fortis has grown via the acquisitions model, and is close to surpassing Apollo Hospitals (NSE: APOLLOHOSP) in the volume of beds managed. It already earns more revenue per operational bed (INR 87 lakhs/year vs. INR 80 lakhs/year) compared to Apollo.
- Ambitious growth plans (~30% pa), with an INR200 billion facility being built in Gujrat, and a total of USD 1 billion earmarked for expansion over the next three years.
- Promoter lineage – same family as Ranbaxy, one of the few Indian companies who invested in R&D like they meant it, and not as lip service.
- Current price is at a one-year low
Some Caveats...
- Price has hit one-year low SEVEN times in the last three months. Why? What am I missing?
- There are wide-spread concerns re. lack of transparency (particularly on valuation and motivation) on the all-cash deal to acquire the international Fortis interests (in 7 countries) into the Indian entity. Why all cash – it is not congruent with the strategy outlined by the managed a while ago.
If I was the managing director...
Taking a cue from the organised retail sector, here’s what I would like the company to do in the near future.
- Leverage the government’s strategic priorities and get involved building healthcare infrastructure via a BUILD-OPERATE-TRANSFER-manage (BOTm... did I just coin a new term?) model. This will provide easy access to real estate – a great barrier to entry. IMHO capital is not so much a deterrent is, as location, location, location!
- In Tier 1 & 2 cities, build sprawling facilities and reap economies of scale in the outskirts / suburbs, and manage satellite out-patient (i.e. day care) facilities inside cities.
- In parallel focus on Tier 2 & 3 towns. do you know how much of domestic medical tourism we cater for? Just think of all your relatives and friends who have gone to Mumbai, Delhi or Chennai for treatment.
What do you think? I'd love to hear from you, and drive trucks through my logic.
DISCLAIMER: The above are random thoughts penned down without a lot of due diligence or qualitative / quantitative analysis. Use at your own risk!
