Fortis Healthcare management charts recovery plan amid financial crisis

Even as debt-strapped Fortis Healthcare (FHL) is grappling with financial crisis, challenges to recruiting talent, and finding a suitor to invest in the health care major, the current management team is working to put the hospital and diagnostic major back on the growth path. 

Plans are afoot to start a new 250-bed multi-organ transplant centre at Arcot Road in Chennai, apart from expanding SRL Diagnostics’ footprint (target to open 100 new centres over the next 100 days), as well as rope in over half a dozen new specialist doctors to boost revenue. 

Fortis has recently raised around Rs 1.25 billion in debt to ease its liquidity shortage. Now, it is in discussion to line up another Rs 3.4 billion debt to tide through the period till the transaction happens. 

In a recent analyst call, Ravi Rajagopal, chairman of Fortis Healthcare, admitted it was critical to rebuild the reputation of the company as well as boost the morale of the employees.

As such the company posted a 3 per cent year-on-year (YoY) fall in revenues in the fourth quarter (Q4) of 2017-18 to Rs 10.8 billion, while its Ebitda (earnings before interest, taxes, depreciation, and amortisation) fell 11 per cent. 

Full-year revenues were flat at Rs 46.51 billion, and Fortis posted losses of Rs 10.09 billion in 2017-18.

The silver lining is that despite losses, the consolidated Ebitda for the full year grew 7.4 per cent to Rs 3.89 billion.   

Bhavdeep Singh, chief executive officer, Fortis, claimed that the company was aiming to have an Ebitda upwards of Rs 5 billion for the full year in 2018-19. Speaking at the investor call, Singh admitted that while there were ‘legacy issues’ with Fortis, one needed to have a fresh start. 

The senior management personnel of Fortis and SRL, along with a newly constituted board of Fortis (SRL board is also undergoing a revamp after former promoters Malvinder and Shivinder Singh stepped down), is thus charting out a plan to boost revenues. 

“Around half a dozen doctors are ready to work with us. They are waiting for some clarity on when an investor comes on board. These specialist doctors can bring in revenues worth Rs 150-180 million per month. This would give a boost to our bottom line,” Singh said. Recruitment of new doctors has been a challenge of late, given the financial crisis the health care major has run into. 

The company also aims to start the 250-bed multi-organ transplant centre in Chennai by the end of the year. Fortis claimed it would be the first-of-its-kind organ transplant centre in the country (under the leadership of Dr K R Balakrishnan) that would cater to heart, lung, pancreas, liver, kidney transplants, among others. Fortis has already pumped in around Rs 1.5 billion to set up it up. It also runs another hospital in the city, Fortis Malar. 

As for SRL, its revenue growth in the quarter was hit and it has also lost the public-private partnership project in Uttar Pradesh around March this year. SRL reported a 4.5 per cent YoY revenue growth in Q4, while its Ebitda declined 18.1 per cent to Rs 330 million. Margins, too, were down 430 basis points (bps) during the quarter. 

IndiaInfoline pointed out that compared to SRL, its peers did better. Dr Lal PathLabs’ revenue grew 21 per cent YoY, while its Ebitda expanded by 130 bps to 24 per cent in Q4 of 2017-18. 

“Overall in 2017-18, SRL has reported 7 per cent YoY growth in revenue. While this growth looks decent, it is still half of Dr Lal PathLabs (16 per cent) as well as Thyrocare (17 per cent). SRL’s Ebitda margin in 2017-18 was 18.9 per cent, compared to 26 per cent of Dr Lal PathLabs, and 41 per cent of Thyrocare,” IndiaInfoline said. 

The diagnostic chain does not have a strong presence in the southern market, and is now facing intense competition in the west and the east as well. The company plans to add 100 new centres over the next 100 days to expand its retail footprint, especially in the south.

Fortis senior management admitted there was a pressing need to close the transaction to ease the liquidity situation, have clarity on direction, capital expenditure as well as on ideation. As Singh said, “The Indian health care market is under-served, and there is huge potential for growth.”