Rainbow Children's Medicare (Rainbow) is a multi-speciality paediatric, obstetrics and gynaecology hospital chain in India, which operates 14 hospitals and 3 clinics in 6 cities. In 1999, the company started its first paediatric speciality hospital in Hyderabad. It has expanded the total bed capacity from 1,162 in FY19 to 1,500 beds as of 2QFY22.
Specialized Newborn Services
Rainbow's core specialities include services such as newborn and paediatric intensive care, paediatric multi-speciality services, paediatric quaternary care, obstetrics and gynaecology, which includes normal and complex obstetric care, and multidisciplinary fetal care, perinatal genetic and fertility care. As of 2QFY22, the company has 602 full-time doctors and 1,686 part-time/visiting doctors. Rainbow operates on a full-time doctor model ensuring that most of the core specialists are available 24/7, which is vital for children's emergency, neonatal and paediatric intensive care services. The company is coming out with an IPO of Rs15.96bn, comprising of a fresh issue of Rs2.8bn and an OFS of 24mn shares. The price band is at Rs516-Rs542, and the market cap at the higher band is seen at Rs55.2bn. The objective of the issue is capex to set up new hospitals and purchase medical equipment.
Hub and Spoke Model Provides Synergies
Rainbow has successfully executed a hub and spoke model at Hyderabad, Telangana with its Banjara Hills hospital. At its hub hospital, it provides comprehensive outpatient and inpatient care, with a focus on tertiary and quaternary care. At its spoke hospital, it provides secondary care in paediatric, obstetrics and gynaecology and emergency services. Rainbow is implementing a similar hub and spoke model in Bengaluru, Karnataka as well. Its hub in Bengaluru is increasingly getting complex referrals from its spokes located at Bannerghatta Road and Hebbal. Rainbow plans to further expand its network of spokes in and around Bengaluru and expand capacity. It also plans to replicate this model in Chennai and New Delhi, where it has hub hospitals, by adding spokes. The hub and spoke model enables Rainbow to provide a comprehensive and accessible paediatric as well as perinatal services.
Financials
For 9MFY22, the company reported a revenue of Rs7.6bn, up 57% YoY, while EBITDA jumped by 97% YoY to Rs2.6bn in 9MFY22, with a margin of 33.7%. The company has witnessed strong margin expansion of 25-27% from FY19 to 9MFY22. It reported PAT of Rs1.26bn, up 228% YoY, with strong revenue and healthy margin expansion. Moreover, RoE stood at 21.3% in 9MFY22, against 8.6% YoY and 8.8% in FY21. Rainbow has maintained a low average long-term debt-to-equity ratio of 0.1x.
Our View
On FY22 annualized financials, the IPO is valued at 15.8x EV/EBITDA, 5.3x EV/sales and 33x P/E, which is largely comparable with peers. Rainbow has the ability to conceptualize, create and operate specialized children's hospitals and is a major factor in child health services. It has strong clinical expertise to manage complex diseases and with its hub and spoke model, provides synergies and ensures better care and access for patients. Moreover, with a strong financial track record and experienced management team, the company is well positioned in the segment. In view of the specialized portfolio, hospital expansion, improving financials, likely margin improvement and valuation comfort compared to peers, we recommend SUBSCRIBE to the issue. |
