FORTIS HEALTHCARE LTD – Q1 FY27 CONCALL HIGHLIGHTS
#Q1FY27
Delhi High Court Order
- Delhi High Court has directed appointment of a forensic auditor with a defined scope of investigation.
- Management stated the order does not change, limit or impede Fortis' strategic or operational plans, including CapEx, bed expansion and M&A.
- Fortis will fully cooperate with the forensic exercise while its legal teams evaluate the best way forward.
Scope of Forensic Audit
- Audit covers reconstruction of the erstwhile promoter entity FHHPL and examination of share dissipation during 2016–18.
- It also covers IHH's acquisition of controlling stake in Fortis, including approvals, filings and subsequent utilisation of investment toward acquisition of healthcare assets from RHT Health Trust.
- Scope includes examination of any role of Fortis/FHL personnel in the erstwhile promoters' share transactions.
- The role of 17 banks and financial institutions in the share dissipation is also covered.
Forensic Audit Timeline
- Auditor is required to send its information questionnaire within 4 weeks.
- Parties will have 2 weeks to respond.
- Court has set a timeline of approximately 6 months for completion/reporting of the exercise.
- Management expects the audit process to conclude within the court-prescribed timeline, although it noted the adequacy of the timeline may be challenging.
Management's Position
- Fortis believes it has been in complete compliance with applicable laws.
- Management said its internal review found nothing abnormal or improper from Fortis' side.
- Based on records reviewed, management remains confident that the outcome should be in Fortis' favour.
- Management does not currently foresee any significant or material adverse impact from the audit.
IHH Commitment
- IHH reiterated that nothing changes regarding its commitment to Fortis.
- Fortis remains IHH's growth engine for its India platform.
- IHH continues to consider the potential merger of Gleneagles and Fortis at the appropriate time.
- IHH is willing to infuse capital into Fortis if required for growth.
- IHH reiterated its commitment to increase its stake to 50%+ over the longer term.
IHH Investment Clarification
- IHH stated that its investment came through a primary issuance by Fortis, following a competitive process run by independent directors.
- IHH said it did not purchase secondary shares from the erstwhile promoters or from the open market.
- IHH highlighted that the acquisition process was fair, transparent and compliant with regulatory requirements.
- The MTO was completed last year after a delay of almost 7 years.
Singh Brothers' Shareholding
- Management stated that the erstwhile promoters had pledged shares to banks.
- Banks subsequently attached and liquidated those shares in the free market.
- As a result, the Singh brothers' holding had fallen to negligible levels by February 2018.
- Subsequently, independent directors conducted a competitive process and selected IHH as the strategic partner.
- IHH infused fresh capital through preferential allotment.
RHT Transaction
- Management reiterated that the RHT transaction was undertaken for the commercial and capital requirements of Fortis.
- RHT was a listed entity in Singapore and the transaction followed applicable regulatory and disclosure requirements.
- Management stated that the purpose of the capital infusion and utilisation of funds had been publicly disclosed.
- IHH also highlighted that the transaction complied with Singapore and Indian regulatory requirements.
Share Transfer Clarification
- Management stated that Fortis had no role in the transfer of shares between the concerned parties.
- Share transfers were executed between the parties through the registrar.
- At that time, regulations did not require promoter share transfers to obtain clearance from Fortis' compliance officer.
- Management therefore stated that Fortis was not involved in or aware of those transactions.
Operations & Brand
- Management said hospital operations remain completely insulated from the legal and shareholding issues.
- Doctors, medical teams and operational leadership remain focused on patient experience and clinical services.
- Some communication with employees and stakeholders will continue to ensure transparency.
- Management does not expect the current development to materially disrupt hospital operations.
Growth & M&A Plans
- Existing brownfield expansion plans remain intact.
- Fortis continues to actively pursue M&A opportunities.
- Management stated that the legal matter does not constrain previously disclosed growth plans or other opportunities under evaluation.
- Internal accruals will primarily support ongoing growth, while IHH remains willing to provide additional capital for major requirements.
Financial Impact
- Fortis does not currently require any provisioning related to the forensic audit.
- No liability has been fixed under the court order; management described the process as a fact-finding exercise.
- Management expects the overall financial impact to be nil, apart from legal expenses.
- Legal expenditure was approximately ₹25 Cr last year and a similar amount could be budgeted this year depending on case intensity.
- The cost of the current forensic audit is to be borne by Daiichi, as specified in the court order.
Legal Strategy
- Fortis' legal teams are reviewing the court order and consulting with senior external and internal counsel.
- Management expects to determine the appropriate legal action within the next 5–10 days.
- If required, Fortis may approach the appropriate legal forum.
- Fortis currently does not plan counter-litigation against Daiichi while the matter remains sub judice.
- Management said it will consider actions necessary to protect the company's interests.
Daiichi Litigation
- Management stated that Fortis was neither a judgment debtor nor garnishee in the relevant proceedings.
- Fortis believes it has been unfairly brought into the dispute involving the erstwhile promoters.
- IHH said the prolonged litigation also delayed its ability to consolidate Fortis faster.
- IHH reiterated that it believes its investment process was compliant and transparent.
6-Month Outlook
- Management expects the forensic audit process to take around 6 months, followed by potentially a few additional months for subsequent actions.
- If the audit proceeds as ordered, management views it as the potential last stop for this line of investigation and litigation, unless something new emerges.
- IHH confirmed that Fortis' growth plans remain intact during the next 6–12 months.
- IHH can undertake permitted corporate actions within the limits of applicable law.
KEY TAKEAWAY
- Legal uncertainty remains, but Fortis' growth plans and IHH backing remain intact.
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