“CORPORATE ASSIGNMENT”

(FM102)

“Term Assignment”
On

“Risk & Return, Capital structure Analysis & Dividend Policy

Analysis”
“(Fortis Hospitals)”

“POST GRADUATE DIPLOMA IN MANAGEMENT”

‘(Term-II; Batch 2019-21)’

“Under the Supervision of”

Prof. Nidhi Singh

‘Associate Professor- Corporate Finance’
‘Submitted by’
‘Group 4’
Adarsh Tiwari (PGMB1903)
Priyatee Bhardwaj (PGMB1922)
Saagar Hira (PGMB1928)
Hrithik Mahajan (PGMB1932)
Siddhartha Duggal (PGMB1934)

“JAIPURIA INSTITUTE OF MANAGEMENT”

‘A-32 A, Sector 62, Institutional Area, Noida- 201309 (U.P.)’
‘December, 3, 2019’

“Jaipuria Institute Of Management, Noida” Page 1

 INDEX

Sr. No. Title ‘Page No.’

‘1’ Preface ‘3’
‘2’ ‘Acknowledgement’ ‘4’
‘3’ ‘Introduction’ ‘5’
‘4’ Company Information 6
‘5’ Risk and Return 7
‘6’ Capital structure analysis 8-9
‘7’ Dividend policy 9-12

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 PREFACE

‘This report is prepared to know about the financials, promoters etc.

and the risk and return of ‘FORTIS HEALTHCARE LIMITED. The
healthcare verticals of the company primarily comprise hospitals,
diagnostics and day care specialty facilities.’ Fortis has established a
quality image in the Indian market and has been consistently among
the top 10 healthcare companies in India.’
In this report, we are going to find out ‘the risk and return of the
company, beta’ i.e. systematic risk, and market risk and return. We
will also find out the cost of equity of fortis healthcare limited through
CAPM (capital asset pricing model) method. We will take the data for
5 years and then compare it.
We will also try to find out the current share price of fortis healthcare
through dividend growth model and then will provide a comment on
all the four functions of corporate finance ‘i.e. financing decision,
Investment decision, Working capital decision’ and Dividend decision
from the perspective of fortis healthcare.

“Jaipuria Institute Of Management, Noida” Page 3

 ‘ACKNOWLEDGEMENT’

‘In performing our Project, we had to take the help and guideline of
fortis, BSE, NSE websites. The completion of this assignment gives us
much Pleasure. We would also like to expand our deepest gratitude to
all those who have directly and indirectly guided us in writing this
Project.’
‘In addition, a thank you to our Professor, NIDHI SINGH who
introduced us to this Project and gave us the opportunity to dig deeper
in to the concepts of Financial management and guided us to perform
this knowledgeable task. We have learned a lot during this project and
we have made sure that this report will be conducive to everyone.’

Thank You

Study Group 4

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 INTRODUCTION

FORTIS HEALTHCARE LIMITED

‘Fortis Healthcare Limited is a leading integrated healthcare delivery

service provider in India. The healthcare verticals of the company
primarily comprise hospitals, diagnostics and day care specialty
facilities. Currently, the company operates its healthcare delivery
services in India, Dubai, Mauritius and Sri Lanka with 45 healthcare
facilities (including projects under development), approximately
10,000 potential beds and 314 diagnostic centers.’
‘In a global study of the 30 most technologically advanced hospitals
in the world, its flagship, the Fortis Memorial Research Institute’
(FMRI), was ranked No.2, by ‘topmastersinhealthcare.com, and
placed ahead of many other outstanding medical institutions in the
world.’
‘Brand Fortis was established in 1996, by their Founder Chairman
Late Dr. Parvinder Singh, who instituted it with the vision 'to create a
world class integrated healthcare delivery system in India, entailing
the finest medical skills combined with compassionate, patient,
care’.
‘Fortis Healthcare is the country’s ‘fastest’ growing healthcare group.
They have grown from first hospital at Mohali (Chandigarh) which
opened in 2001 to over 55 facilities today. These include the world
famous Escorts Heart Institute and the erstwhile Wockhardt
facilities. From North to South, East to West, Fortis truly has India
covered - the frontier city of Amritsar, to Ludhiana, Mohali, the
National Capital region, Mumbai, Bangalore, Mysore, Chennai,
Kolkata and many more destinations are all home to Fortis facilities.

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 ‘COMPANY INFORMATION’

‘Board of Director:-‘
‘EXECUTIVE DIRECTOR’
 ‘Mr Malvinder Mohan Singh’

‘NON-EXECUTIVE DIRECTORS’
 ‘Dr Brian William Tempest’
 ‘Mr Harpal Singh’
 ‘Ms Joji Sekhon Gill’
 ‘Mr Pradeep Ratilal Raniga’
 ‘Dr Preetinder Singh Joshi’
 ‘Dr Shivinder Mohan Singh’
 ‘Ms Shradha Suri Marwah’

‘Chief Executive Officer’

 ‘Mr Bhavdeep Singh’

‘Chief Financial Officer’

 ‘Mr Gagandeep Singh Bedi’

‘Company Secretary and Compliance Officer’

 ‘Mr Rahul Ranjan’

‘Auditors’
 ‘M/s Deloitte Haskins & Sells LLP Chartered Accountants, New
Delhi.’

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 RISK AND RETURN
1) BETA ANALYSIS:
‘Beta is a measure of a stock's volatility in relation to the market.
By definition, the market has a beta of 1.0, and individual stocks are
ranked according to how much they deviate from the market.
A stock that swings more than the market over time has
a beta above 1.0.’
FORTIS- 0.324
APOLLO HOSPITAL- 0.47
It can be seen that the beta of Fortis is less if we compare it with
Apollo hospital but if we look at both the hospital it can be seen that
both the hospital’ share prices are less volatile as compared to the
markets as if the market will increase or decrease by 100% the
prices of these bonds will move less that is Apollo hospital will move
47% whereas the change in Fortis hospital will be less that is 32.4%
which shows that the shares of Fortis hospital are less volatile thus it
will be less effected by the changes in the market.

2) COVARIANCE ANALYSIS:
‘Covariance is a measure of the directional relationship between
the returns on two risky assets. A positive covariance means that
assets returns move together while a negative covariance means
returns move inversely. Covariance is calculated by analysing at-return
surprises (standard deviations from expected return) or by multiplying
the correlation between the two variables by the standard
deviation of each variable.’
 Fortis hospital has Positive covariance i.e. 0.00066 which is less than 1,
that means that the stock of the company will move in similar direction as
in NIFTY, but it will not show much significant growth. It means that for a
given situation in the market, the stock is likely to move in the same
direction as NIFTY moves.

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 CAPITAL STRUCTURE ANALYSIS

FINANCIAL YEAR D/E RATIO INTEREST COVERAGE RATIO CLOSING SHARE PRICE
31-03-2015 0.16 0.52 168.9
31-03-2016 0.29 0.06 180.7
31-03-2017 0.15 -0.04 180.7
31-03-2018 0.1 1.12 123.35
31-03-2019 0.17 1.93 135.75

1. ‘Debt equity ratio:

The Debt to Equity ratio is a financial ratio that compares a company’s
total debt to total equity. The debt to equity ratio shows the
percentage of company financing that comes from creditors and
investors. A higher debt to equity ratio indicates that more creditor
financing (bank loans) is used than investor financing (shareholders).’

Debt-equity ratio of financial sectors mainly banks is high because

they are capital intensive they deal with high delivery of credit. So,
that is the reason why bank have high debt equity ratio.
 Fortis hospital debt equity ratio has been increasing since the past few
years from 0.16(2015) to 0.17(2019). This is good for the company but as
compare it with their competitor i.e. Apollo hospital, their debt-equity
ranges from 0.48(2015) to 0.79(2019), which shows higher increase than
Fortis.

2. ‘Interest coverage ratio:

The interest coverage ratio is a financial ratio that measures a
company’s ability to make interest payments on its debt in a timely
manner. Unlike the debt service coverage ratio, this liquidity ratio
really has nothing to do with being able to make principle payments
on the debt itself. Instead, it calculates the firm’s ability to afford the
interest on the debt.’
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 Since, mostly ICR, which ranges between ‘1.25 to 2’ is considered to
be good and satisfactory. The ICR of Fortis hospital was 0.52 in the
year 2015 which increased to 1.93 in current year (2019).
So, it is considered to be good.

Dividend policy
CLOSING SHARE
S.NO
FINANCIAL YEAR PRICE PAYOUT RATIO EPS(Rs) DPS(Rs)
1 31-03-2015 168.9 0 -0.73 0
2 31-03-2016 180.7 0 -1.59 0
3 31-03-2017 180.7 0 -1.57 0
4 31-03-2018 123.35 0 -1.23 0
5 31-03-2019 135.75 0 2.02 0

1) Share price:
It is the price which need to be paid for buying a single share of ownership in
the company’s pool of shares. It can be determined by the demand and supply
of a particular stock in the market.
It can be seen that there is a movement in the share prices of Fortis hospital
but it is moving downward. It can be seen that the share prices of Fortis
hospital are always between Rs.135 to Rs.170 it shows that there have been
many fluctuations in the demand and supply of shares of Fortis hospital in the
last few years resulting in such fluctuations in prices of shares.

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 2) ‘Dividend payout ratio:’
‘The dividend payout ratio is the ratio of the total amount of dividends paid out
to shareholders relative to the net income of the company. It is the percentage
of earnings paid to shareholders in dividends. The amount that is not paid to
shareholders is retained by the company to pay off debt or to reinvest in core
operations. When a company generates negative earnings, or a net loss, and still
pays dividend, it has a negative payout ratio. A negative payout ratio of any size
is typically a bad sign. It means the company had to use existing cash or raise
additional money to pay the dividend.’

Fortis’ DPS is showing 0 which means there is no scope for giving out dividends
to its shareholders. Another factor is negative or less EPS which does not
encourage the company to give out dividend to the shareholders.

If made a comparison to Apollo hospitals they distribute around 5-6 percentage

of dividends, but it is lightly declined as compare it with last year.

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 3) ‘EARNING PER SHARE:’

‘Earnings per share refers to that part of a company’s profit which is allocated
to each outstanding share of the company. It serves as an indicator of the
company’s financial health.’

The formula for calculating EPS is:

‘EPS = Net Profit/ Number of shares outstanding’

High EPS indicates higher company’s profit and less no. of shares.

‘Companies don’t always earn profits. Sometimes they have losses and their
earnings are negative. When earnings are negative then EPS also turns to be
negative. A negative EPS indicates that how much company lost per share which
is why it is also sometimes called “net loss per share”. If the company is
consistently reporting negative EPS then, yes, it is a bad signal when choosing to
invest in that company.’

In case of Fortis hospital, since this hospital has low volatility, the hospital’s EPS
has also showed an increase i.e. from -0.73(2015) to 2.02(2019) which is a good
signal for the investors, but it increased in a very slow rate. Baring a comparison
with Apollo hospital who in 2015 had its EPS at 24.91 and which now in 2019 is
around 21.76, shows it is declining slowly.
If the company intends, they bring back their EPS to the same level or beyond
through: -
 Revenue development
 Share buybacks
 Margin extension

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 4) DIVIDEND PER SHARE:

‘Dividend per share (DPS) is the sum of declared dividends issued by a company
for every ordinary share outstanding. The figure is calculated by dividing the
total dividends paid out by a business, including interim dividends, over a
period by the number of outstanding ordinary shares issued. A company's DPS
is often derived using the dividend paid in the most recent quarter, which is also
used to calculate the dividend yield.’

Fortis hospital shows that their dividend per share is 0 for all years. This means
company might be facing adverse conditions and hardships, or it is also
possible that they are regularly investing in capital.

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