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com April 13, 2007

Fortis Healthcare
IPO Fact Sheet

Issue details some with super-specialty centres of excellence), a boutique-

style hospital and various satellite and heart command
Isuue open: 16-Apr-2007
centres. The company currently has a network of 11 hospitals
Issue close: 20-Apr-2007
primarily in north India, 15 satellite and heart command
Offer size: Rs420-503 cr
centres in hospitals across the country and one heart
Issue size: 4.57 cr command centre in Afghanistan. Out of the network of 11
Price band: Rs92-110 hospitals, six are owned by the company, one hospital is in
Net issue: collaboration with the government of Chattisgarh and four
- QIBs* 60% of net issue size hospitals are under operation and maintenance (O&M)
- Non-institutionls 10% of net issue size contract.
- Retail individuals 30% of net issue size
In September 2005, the company acquired 90% interest in
*5% allocation for mutual funds
Escorts Heart Institute & Research Centre (with three
Issue objective majority-owned hospitals in north India, a fourth hospital in
Fortis Healthcare (FHL) has already raised around Rs153.69 collaboration with the government of Chhattisgarh and 10
crore through the pre-initial public offer (IPO) placements satellite and heart command centres) for Rs585 crore. The
and further plans to raise around Rs420-503 crore, depending acquisition has more than doubled FHL's gross income and
on the price band. The company intends to use the issue increased its expertise and prominence, especially in the
cardiac care specialty area.
proceeds 1) to part finance (ie Rs100 crore) the construction
and development of a new hospital by its subsidiary OBP Ltd FHL's hospital network consists of multi specialty "spoke"
in New Delhi; 2) to refinance Rs560 crore availed for the hospitals, which provide comprehensive general healthcare
acquisition of Escorts Heart Institute and Research Centre to patients in their local communities, and super specialty
Limited (EHIRCL); 3) to prepay Rs70 crore of short-term "hub" hospitals, which provide more advanced care to
loans; and 4) for the general corporate and issue expenses. patients, including patients from its own "spoke" hospitals
as well as other hospitals in the surrounding areas.
Shareholding pattern
Most of FHL's hospitals are multi-specialty hospitals (covering
Pre-issue Post-issue secondary and tertiary healthcare), while some are super-
Shares (cr) % Shares (cr) % specialty "centres of excellence" providing quaternary
Promoters group 16.87 93.37 16.87 74.42 healthcare. The key specialty areas of the company include
Pre-IPO investors 1.07 5.91 1.07 4.71 cardiac care, orthopedics, neuro-sciences, oncology, renal
Public 0.00 0.00 4.57 20.18 care, gastroenterology and mother and child care.
Others 0.13 0.73 0.16 0.69
Total 18.07 100.00 22.67 100.00 FHL has approximately 1,490 inpatient beds in use across
the network of 11 hospitals, with capacity to increase the
Company background inpatient beds to approximately 1,790. In the nine months
Fortis Healthcare (FHL), incorporated in 1996 by the Ranbaxy ended December 2006, the hospitals performed over 4,500
Laboratories group, is one of the largest private healthcare heart surgeries, 4,000 angioplasties and 12,500
companies in India. The company commissioned its first angiographies. During fiscal 2006, the hospitals performed
over 5,000 heart surgeries, 5,000 angioplasties and 15,000
hospital at Mohali in 2001. Since then, FHL has expanded
angiographies.
its operations by opening multi-specialty hospitals (including

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Investment positives
Brand equity to support growth
FHL has created a good brand image in north India,
supported by its high-end healthcare services in areas like
cardiac care, orthopedics, neuro-sciences, oncology, renal
care, gastroenterology and mother and child care. Further
the acquisition of EHIRC, the pioneer in cardiac care, adds
sheen to its brand positioning. After making Fortis an
established brand in north India, it now expects to capitalise
on the brand equity in spreading its presence across India
and to attract patients. To start with, the company has
acquired 100% interest in Hiranandani Healthcare (HHPL)
at Navi Mumbai in February 2007.
Well placed to exploit strong industry growth
So far the growth of the Indian healthcare industry has
been dormant with total healthcare spending in the country
at 4.8% of the gross domestic product (GDP). Further there
has been lack of health insurance and lesser public spending.
But with the increasing income levels of the urban middle
class, higher incidence of lifestyle diseases, medical
insurance penetration and medical travel from other
countries, the domestic healthcare industry foresees a
strong growth. As per the study, the Indian healthcare
market is likely to double by 2010 from Rs91,000 crore in
2004. Hence, FHL with its strong brand equity in the high-
end healthcare services is well placed to exploit the growth
in the domestic market.
In the nine months ended December 2006, the average
occupancy rates at the company's main hospitals-Fortis
Hospital at Mohali, EHIRC in New Delhi, Fortis Hospital at
Noida and EHRC at Rajpur in Chhattisgarh were 75%, 81%,
82% and 91%, respectively. This is one of the best in the
industry.
Investment concerns
Pending litigation weighs
FHL has significant litigations related to its acquisition of
EHIRC and its subsidiaries comprising among other things
EHIRCL's corporate existence, tax payments, and land rights.
w EHIRCL's predecessor was a charitable society and
subsequently merged with a non-charitable society in
the nature of a joint stock company, which was
thereafter incorporated as a company. The validity of
the initial merger of the societies and the subsequent
incorporation as a company are now being challenged in
the Delhi High Court. The DDA, the owner of the land on
which the EHIRC hospital is located, has treated both the
initial merger of the societies and the subsequent
conversion to a company as prohibited transfers of property
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Fortis Healthcare
under the terms of its lease of the land and, accordingly,
has terminated the lease deeds. These matters are
currently pending in the Delhi High Court, which may cause
problems for the corporate existence of EHIRCL.
w The company is involved in a legal wrangle with Mr Anil
Nanda, estranged brother of Mr Rajan Nanda, Chairman
of Escorts, and one of the stakeholders in Escorts. He
has filed a petition in the High Court seeking direction
to restrain Fortis from raising money through the IPO.
w The Income Tax Department has re-opened certain tax
assessments of EHIRCL's predecessors, Delhi Society and
Chandigarh Society and has assessed additional income
tax payments aggregating Rs304.43 crore for periods
ranging between fiscal 1997 and fiscal 2001.
If any of these is resolved against FHL, the company could
be required to make large payments to the governmental
authorities or could, in some circumstances, lose their right
to the shares in EHIRCL and its subsidiaries for which they
have paid Rs585.01 crore, their right to the EHIRC, EHRC
and EHSSI hospital facilities or their right to operate their
inpatient business at EHIRC.
Operating losses despite higher occupancy
In the nine months ended December 2006, the average
occupancy rates at the company's main hospitals Fortis
Hospital at Mohali, EHIRC in New Delhi, Fortis Hospital at
Noida and EHRC at Rajpur in Chhattisgarh were 75%, 81%,
82% and 91%, respectively, which are reasonably high (there
are limits beyond which the occupancy rate cannot be
increased). Yet, the company is making operating losses.
All the hospitals are well established and have run through
their gestation periods.
Other concerns
w A significant portion of FHL's revenue comes from a
limited number of customers and that too from public
bodies like the state governments of Haryana, Punjab
and Himachal Pradesh, Northern Railways, ministry of
defence etc. And the average collection periods from
these bodies are longer. As a result of the business
dealings with the government bodies, the debtors stand
at Rs908.4 crore as on December 31, 2006, which is
surprisingly above 24% of the 9-month revenue of
Rs3,765.9 crore.
w In 2004 the Delhi High Court has directed EHIRCL for the
free treatment of indigent patients againts which FHL
has preferred to appeal to the Supreme Court. If the
high court's direction is upheld, the company may have
to provide for substantial sums from retrospective effect.
2 April 2007
 sharekhan ipo flash Fortis Healthcare

Valuation and view While Fortis with lesser experience, lesser number of
Fortis Healthcare offers its shares at a price band of Rs92- hospitals, historical track record of losses, is valued at a
110, which leads to the market capitalisation of the company marginal discount to the peer in the range of Rs2,085-2,493
to Rs2,085-2,493 crore. The valuation of the company crore (as per the price band). Hence, the issue price seems
seems high, as FHL acquired 90% in EHIRC in September costly. However, the comfort aspect is FHL has done pre-IPO
2005 for Rs585 crore (valuing EHIRC at Rs650 crore). EHIRC placements with various investors at an average price of
presently contributes around 60% of the consolidated Rs145 per share.
revenue. Thus, the total value of the company would be
Peer group comparision
around Rs1,083 crore (ie Rs650 crore x 100/60).
Fortis Apollo
So far as the peer group comparison is concerned, Apollo
Sales 502.1 849.6
Hospital Enterprises is the only listed company. The market
Ebitda 53.7 175.3
capitalisation of Apollo, which is an established player with
Ebitda margin (%) 10.7 20.6
20 hospital, years of track record, 2,553 number of beds
Market cap 2085-2493 2749
and huge expansion plan, is Rs2,570 crore. At this valuation
No of Hospital 12 20
Apollo commands a high TTM P/E of 37x. The premium
No of beds 1490 2553
valuation is because Apollo Hospitals is the only available
Revenue per bed 0.34 0.33
stock in the growing domestic healtcare industry.
Financials
Profit and loss account Rs (cr)
Particulars FY2004 FY2005 FY2006 9MFY2007
Operating income 49.1 73.7 292.6 376.6
Expenditure 54.2 80.9 271.5 344.3
Materials consumed 18.0 27.2 103.3 129.6
Personnel expenses 15.6 17.3 68.6 100.1
Operating expenses 12.9 26.8 66.8 80.7
General and administration expenses 5.6 5.6 29.1 32.4
Selling expenses 2.1 4.1 3.6 1.3
Operating income -5.0 -7.2 21.1 32.3
Other income 1.0 4.2 4.6 8.0
EBITDA -4.1 -3.0 25.7 40.3
Interest expense 7.9 4.4 34.3 45.4
Depreciation/Amortization expense 7.0 8.7 22.7 27.8
Amortization on goodwill 0.0 0.0 22.2 34.3
PBT -18.9 -16.0 -53.5 -67.1
Tax 0.0 2.6 11.4 5.7
PAT -18.9 -18.7 -65.0 -72.8
Pre-operative and preliminary write off 0.3 1.0 0.1 0.1
Adjusted PAT -19.3 -19.7 -65.0 -72.9
Balance sheet Rs (cr)
Particulars FY2004 FY2005 FY2006 9MFY2007
Net block 67.3 120.4 362.9 398.5
Capital work in progress 23.5 1.8 86.5 66.4
Expenditure during construction period 7.6 0.0 4.7 5.8
Total fixed assets 98.3 122.2 454.1 470.6
Investments 0.0 0.0 0.5 0.3
Deferred tax 0.0 0.0 5.5 9.1
Goodwill 0.0 0.0 426.1 391.9
Current assets, loan and advances 7.4 17.1 140.6 173.9
Total assets 105.8 139.3 1026.8 1045.8
Equity share capital 74.9 84.7 170.0 170.0
Non cumulative redeemable preference share capital 0.0 0.0 1.0 27.0
Share application money (pending allotment) 0.0 0.0 260.0 0.0
Reserves and surplus 0.0 1.6 1.6 235.6
Less: debit balance of profit and loss account 53.1 63.6 121.3 200.4
Miscellaneous expenditure 0.2 0.1 0.0 0.0
Liabilities and provisions 83.9 116.8 715.8 813.7
Total loans 47.9 73.1 598.5 676.8
Other liabilities and provisions 36.0 43.7 117.3 136.9
Total liabilities 105.8 139.3 1026.8 1045.8

Sharekhan 3 April 2007

 sharekhan ipo flash Fortis Healthcare

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offering details. The note is advisory in nature, but is not a Recommendation under our “Stock Idea” category. It
may/may not be considered as a “Stock Idea” by our analysts at a later date.

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Sharekhan 4 April 2007