Fortis plans to add 700 beds in FY25: MD & CEO Ashutosh Raghuvanshi

Raghuvanshi provides an overview of the company's FY24 performance and expansion plans for FY25

Fortis Healthcare is in an expansion phase, adding 246 beds during 2023-24 (FY24) and aiming to add 700 beds in 2024-25 (FY25). It has also divested two underperforming units in Chennai as part of its profitability focus. ASHUTOSH RAGHUVANSHI, managing director and chief executive officer of Fortis Healthcare, provides an overview of the company’s FY24 performance and expansion plans for FY25 in a telephonic interview with Sanket Koul. Edited excerpts:

How would you assess the company’s performance in FY24?
 

We are very pleased with the company’s performance in FY24. We saw almost 11.3 per cent growth in our hospital business’ top line, and our margins expanded by almost 170 basis points to 18.6 per cent for FY24.

Fourth-quarter margins for the hospital have also exceeded Street expectations at 22.4 per cent. We expanded our capacity by about 246 beds in FY24, including a 70-bed hospital in Ludhiana, the second facility in that city.

Simultaneously, we divested two major underperforming units in Chennai. We also completed the acquisition of a potential 450-bed facility in Manesar, which would further strengthen our presence in the National Capital Region.

We performed well clinically, with key procedure volumes growing at 8 per cent. While the diagnostic business was muted, it still achieved a margin of about 19.5 per cent, better than 2022-23 (FY23).

What are the reasons behind the muted growth in the diagnostic business?
 

The business was impacted due to the brand name change undertaken in May 2023. As more than 50 per cent of our diagnostics business is business-to-consumer, coming from customer touchpoints and collection centres, the brand change naturally affected customer business.

Provisions related to business with the government in Delhi (Aam Aadmi mohalla clinic) and considerable expenses for rebranding affected the business.

Lastly, FY23 had a pandemic element absent in FY24. Excluding Covid, non-Covid revenues actually grew by 6 per cent over FY23.

What are the reasons behind the 10.3 per cent increase in average revenue per occupied bed (ARPOB) per day?
 

In our case, the increase is mainly due to growth in core specialties, particularly oncology and high-end surgeries in various other areas. Our surgical volumes were slightly higher, at about 58 per cent, and procedures like transplants, robotic surgeries, and radiation therapies saw volume growth exceeding 50 per cent. These procedures have high ticket sizes, resulting in higher ARPOB.

What are your expansion plans for FY25?
 

In FY25, we plan to add about 700 beds, including the commissioning of the Manesar facility. Beds will also be added to existing facilities at Faridabad, BG Road in Bengaluru, Kolkata, and Shalimar Bagh in Delhi. Of these 700 beds, we plan to operationalise close to 350 beds during the year. However, if the ramp-up is faster, we can open up the rest of the beds as well. Our priority remains brownfield expansion, and in the next few years, we plan to increase our capacity to around 6,000 beds.

How do you anticipate the evolving valuations in the healthcare mergers and acquisitions space, and what opportunities do you foresee for Fortis in this context?
 

Valuation is a function of factors, and we are primarily concerned with the strategic importance of the asset and how it fits into our framework. While valuations have become quite high, some assets may not justify such metrics. We continue to evaluate assets and valuations within a framework considering parameters of synergy and return metrics for our shareholders, such as internal rate of return, payback period, and earnings per share accreditation or dilution. We are currently evaluating certain opportunities that we believe would add value to our company.