Delhi-headquartered Fortis Healthcare is open to acquisition of hospitals with over 250-300 bed sizes as part of its strategy to grow at a faster clip.
It may also opt for a neutral brand name soon.
Neutral brand is a new brand, which is not owned by any of the stakeholders.
Ever since Malaysia’s IHH Healthcare picked a 31 per cent stake in 2018, Fortis has been going slow in bed additions.
It has been focusing more on consolidating its business operations, repairing its balance sheet and improving profitability.
Having turned around its operations, Fortis is now embarking on an ambitious 2,000-bed expansion over the next 3-4 years.
It is open to making acquisitions (it recently acquired a 350-bed hospital in Manesar), and is also considering shifting to a neutral brand distinct from Fortis.
The current brand name Fortis (as well as the earlier diagnostic business brand SRL) was owned by ex-promoter entities.
“We have taken a calculative view that at least for SRL, we have moved to the Agilus brand, and we have successfully completed that last year.
"Regarding Fortis, the matter is in court, and we are watching it very carefully.
"Our action will depend on the outcome of court proceedings,” said Vivek Kumar Goyal, chief financial officer (CFO), Fortis Healthcare.
“We are open to various options, including retaining the Fortis brand, and maybe shifting to the Parkway brand or a neutral brand.
"So, all the options are open for us right now and we are exploring them very carefully.
"We’ll come to the market once we finalise on these,” he added.
Parkway brand is owned by IHH Healthcare. Goyal said Agilus is a neutral brand that is now fully owned by the company.
The Fortis brand is owned by ex-promoter entities, and the brand licence agreement has expired, Goyal added.
“We have been accounting for brand royalty fees.
"These fees, calculated at 0.25 per cent of our revenue are in accordance with terms of the last expired agreement,” he said.
Meanwhile, the hospital major is focusing on expanding the bed count.
It has been investing Rs 350 crore or so every year, and in FY25, it has already invested close to Rs 500 crore.
In all, Fortis has invested Rs 1,500 crore in the past five years, and a major portion of this capex till date has gone into medical equipment and maintenance capex.
It has also invested in brownfield capex (especially in existing facilities with additional land parcels).
Around Rs 200 crore every year has gone into maintenance capex.
Goyal said that in the current financial year it is targeting Rs 750 crore capex.
This year, it has a plan to add 250 beds or so.
For the next three years, Fortis’ capex would be around Rs 600 crore on an average every year (of which maintenance capex would be around Rs 200 crore each year).
Most of this would be funded from internal cash flow generation.
“We have a very healthy cash flow generation, and we are reducing debt every year.
"In fact, we have started paying a dividend from last year onwards.
"Cash flow is not an issue, and we will be able to meet this entire brownfield capex and maintenance capex requirement from our internal accruals,” Goyal said.
"The current debt numbers involve the amount it has invested in the recent acquisition in Manesar, where Fortis has acquired a 350-bed capacity for Rs 250 crore.
"We are actively looking now on the acquisition of things.
"We have started with Medeor Hospital (Manesar) and there are other acquisition opportunities which we are exploring.
"If it fits our overall scheme of things, we will definitely go for the acquisition,” Goyal said.
As of September 2023, Fortis had a net debt of around Rs 393 crore.
This has come down from around Rs 1,500 crore at the time IHH picked up stake in Fortis.
Goyal said since it wishes to accelerate capex spend, the debt levels would remain at Rs 350-400 crore levels.
