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Rainbow Childrens Medicare IPO  Fundamental Analysis

Rainbow children’s Medicare (the ‘Issuer’) is a leading multi-specialty pediatric and obstetrics and gynecology hospital chain in India. It currently operates 14 hospitals and 3 clinics in six cities, with a total bed capacity of 1,500 beds, as of December 31, 2021.

  • 6 hospitals and 1 OP (Outpatients) clinic in Hyderabad
  • 2 hospitals in New Delhi
  • 3 hospitals in Bengaluru
  • 1 hospital and 1 OP clinic in Visakhapatnam
  • 1 hospital and 1 OP clinic in Vijaywada
  • 1 hospital in Chennai

Core specialties are (i) pediatrics, including newborn and pediatric intensive care, pediatric multi-specialty care and pediatric quaternary care, where multi-organ transplants are performed in children, and (ii) women care, including normal and complex obstetric care, multi-disciplinary fetal care and perinatal genetic care, as well as fertility care.

First pediatric specialty hospital was established in 1999 in Hyderabad, Telangana. The Issuer has created a hub and spoke model in Hyderabad, Telangana through a network of a hub hospital in Banjara Hills, Hyderabad, Telangana supported by four spokes spread across the city.

As of December 31, 2021, Rainbow had 641 full-time doctors and 1,947 part time/visiting doctors. Fulltime doctor model along with a strong middle grade doctor pool ensures seamless healthcare delivery across hospitals, which has resulted in a high degree of patient satisfaction.

Rainbow plans to build similar capabilities in hospitals in Bengaluru, Karnataka, Chennai, Tamil Nadu and New Delhi- NCR. Further, Rainbow Children’s Heart Institute is a 110-bed standalone pediatric cardiac center that treats children’s cardiac problems. The Issuer has plans to invest in specialized medical infrastructure such as cath labs, pediatric cardiac OT and echocardiogram machines, which would enhance capabilities in treating cardiac patients.

Financial Review

The Issuer posted total revenues of Rs 774.06 crore and PAT of Rs 126.41 crore for 9MFY22. This was due to an increase in patient visits with ease in pandemic. Additionally, the Issuer received revenues from the vaccination program implemented at the hospitals and higher pricing from performance of tertiary and quaternary specialties which had a positive impact on financial performance (there was an increase in the number of children suffering from multi-system inflammatory syndrome which occurs post recovery from COVID-19 which were referred to Rainbow). EBITDA and the net margins were 35.40% and 16.33% respectively during 9MFY22.

The total income of the Issuer was reduced by 9.51% to Rs 660.31 crore for FY21 from Rs 729.74 crore for FY20 because revenue from operations were affected by the pandemic. PAT was Rs 39.57 crore for FY21 as against Rs 55.34 crore for FY20. The profitability margins have been strong since all the last three fiscals. EBITDA margins were 28.90%, 28.83% and 26.63% respectively for FY21, FY20 and FY19.

Return on net worth was 6.70%, 12.40% and 11% respectively for FY21, FY20 and FY19 respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Particulars 9MFY22 FY2021 FY2020 FY2019
Total Revenue 774.06 660.31 729.74 551.14
Revenues from operation 761.31 650.05 719.39 542.79
PAT 126.41 39.57 55.34 44.59
EBITDA 269.50 173.1 207.38 156.87
Total Assets 1239.76 1081.27 1019.24 926.4
EBITDA Margin 35.40% 26.63% 28.83% 28.90%
Net Margin 16.33% 5.99% 7.58% 8.09%

Valuation and peer comparison

The IPO is priced at 30.36x with annualized EPS of 17.85 for 9MFY22. The industry P/E is 114.49x which indicates that the IPO is suitably priced. The peers of the Issuer are Apollo Hospital, Max Healthcare, Fortis, Narayan Hruda and KIMS as per the RHP. Peer Comparison can be seen from the below table.

Table 2 - Listed Peer Comparison
Particulars Apollo Fortis Narayana Max Healthcare KIMS Rainbow Medicare
Face Value/share 5 10 10 10 10 10
Total Income for FY21 (Cr) 10605 4076.69 2610.52 2619.41 1340.1 660.3
EPS (FY21) 10.74 -1.45 -0.7 -1.59 26.87 4.36
NAV per share 320.1 81.06 54.82 58.37 111.32 48.82
Return on net worth 3.30% -0.75% -1.46% -2.47% 23.74% 6.70%
P/E (As on 24 April 2022) 270.27 -137.34 -580 -129.4 54.19 NA
P/B (As on 24 April 2022) 9.07 2.45 7.41 3.53 NA NA
Market Price (As on 25 April 2022) 4673.95 270.5 695.95 413 1350 NA

Issue Details

Rainbow IPO opens on 27thApr- 29th Apr 2022 with a price band of Rs 516-542 per share. Retail quota is 35% and investors can apply with a minimum bid of 27 shares (Rs 14,634). Maximum lot size is 351 shares (Rs 1,90,242).The issue has an offer for sale by promoters, British International Investment PLC and CDC India. Promoter’s post IPO holding would be 49.83% from 62.19% pre IPO holding. The Issue is expected to list on 10th May 2022.

Conclusion and Investment Strategy

Rainbow has a presence in the maternity and pediatric healthcare market in India and there is a growing preference for speciality maternity hospitals. Private maternity healthcare market grew at 4-5% CAGR between FY216-FY20 from Rs173 billion to Rs 208 billion. The private maternity care market is expected to grow at CAGR of 11-12% between FY21-FY26 to Rs 261 billion.

The Issuer has reasonable profitability margins across the last three years but the limiting factor that arises is revenues for 9MFY22 are to some extent also driven by pandemic as discussed in the financial review of the company. Hence, its financial results for one or two future years need to be tracked. Another risk factor to be considered before taking any investment strategy is that the healthcare sector and pediatric segment is surrounded by many private players so growth may not be as lucrative in the long run. Hence analyzing all the factors, one may apply to the IPO.

There are two IPO’s coming up at the same time so one may decide accordingly while comparing the risk factors of the respective credits.

Reviewer recommends May Apply to the issue.

Review By CA Priyanka Choudhary on 20th Apr 2022

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.



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