Rainbow Children Medicare IPO Review

The Rainbow Children Medicare IPO consists of a fresh issue of shares worth Rs 280 crores and an offer for sale worth Rs 1,301 crores by the company’s promoters and selling shareholders. The price band of the issue has been fixed at Rs 516-542 per share. Rainbow Children Medicare is a multi-specialty paediatric and obstetrics and gynaecology hospital chain operating 14 hospitals and three clinics in six cities with a total bed capacity of 1,500 beds.

Issue OpensWed, 27th April, 2022
Issue Closes Fri, 29th April, 2022
Issue DetailsFresh Issue of Equity Shares upto ₹ 280 Cr
 +Offer for Sale of 24,000,900 Equity Shares
Face Value₹ 10/- Per Share
Issue Size  (₹ Cr)₹ 1,518 – 1,581 Cr
Bid Lot27 shares
Price Band₹ 516 – 542
Issue Structure : 
QIB50% of the net offer (
NIB15% of the net offer ( 235 Cr)
 HNI-1 (2-10 L), 378 shrs, min applications required for 1x = 3858
 HNI-2 (>10 L), 1863 shrs, min applications required for 1x = 1565
Retail35% of  offer ( 548 Cr)
Appl. for 1x Retail3.78 Lac

About Rainbow Children Medicare

  • Rainbow Children’s Medicare Limited was incorporated in 1998.
  • It is a leading multi-specialty pediatric and obstetrics and gynecology hospital chain in south India operating 14 hospitals and 3 clinics in 6 cities, with a total bed capacity of 1,500 beds, as of September 30, 2021.
  • Rainbow Children Medicare core specialties are pediatrics, which includes newborn and pediatric intensive care, pediatric multi-specialty services, pediatric quaternary care (including multi organ transplants); and obstetrics and gynecology, which includes normal and complex obstetric care, multi-disciplinary fetal care, perinatal genetic and fertility care.
  • It has the highest number of hospital beds amongst comparable players in the maternity and pediatric healthcare delivery sector, as of March 31, 2021.
  • It has 641 full-time doctors and 1,947 part time/visiting doctors.
  • Rainbow Children Medicare follows a hub-and-spoke model in Hyderabad, with their Banjara Hills hospital (comprising 250 beds) being the hub and 4 spokes at 4 locations in Hyderabad, namely Secunderabad, LB Nagar, Kondapur and Hydernagar.
  • Currently, 5 of their hospitals are accredited by NABH and 3 of their hospitals are certified by EDGE.
  • They have also increased the scale of their reach to patients through a robust digital ecosystem. In the period from April 1, 2020 to March 31, 2021, they conducted over 125,000 outpatient video consultations through their video consultation platform.
Our Centres

Rainbow Children Medicare IPO: Salient Points

  • Prompters stake to come down to around 50% post IPO.
  • Company has track record of uninterrupted dividend for the past decade.
  • 82% of the IPO is offer for sale (OFS) by CDC. CDC is looking to halve its 30% stake in the company.
  • Rs. 280 cr is fresh issue of which Rs. 170 cr will go for capex towards new hospitals and Debt repayment Rs. 40 cr debt and rfest for general corporate purposes.
  • CDC invested 200 crore oiin equity of company and another 50 cr. was provided a debt.
  • With the IPO proceeds Rainbow Children Medicare intends to prepay remaining Rs. 40 crore to CD against debentures.

Financials:

Item / ( Rs. in Crores)2021(09)2020(09)FY21FY20FY19
Revenue from Operations761.31486.17650.05719.39542.79
Revenue Growth (%)56.59%-9.64%32.54%
EBITDA269.49138.67173.1207.37156.87
Adj. EBITDA256.74130.54162.83197.03148.51
Profit before Tax171.5954.255.793.3657.53
Profit for the period126.4138.5339.5755.3444.59
Net Profit Margin (%)16.60%7.93%6.09%7.69%8.21%
EPS – Basic (₹ )13.394.224.365.984.83
Share Capital10554.954.954.954.9
EPS – Diluted (₹ )13.124.12^4.255.924.74
RoNW (%)21.45%8.68%8.88%13.68%12.01%
Net Asset Value (₹ )61.6348.848.8244.5740.52
Post IPO Equity101.5
FV10
IPO Price542
EPS ( FY21)3.90
PE( FY21)139.03
EPS TTM12.50
PE (TTM)43.36
EPS 9m ann16.61
PE (TTM) 9m ann32.64
Market Cap5501
Market Cap / Sales 5.42

Concerns

  • increased competition from bigger hospital players.
  • Unfavorable government policies and regulations
  • Delay in hospital network expansion
  • Attrition among the medical professionals
  • Difficulty in sustaining current good performance

Listed Peers: Operating Metrics

HospitalNo. of Hospitals  No. of beds  ARPOB( ‘000 per day)  ALOS  
Rainbow Children’s Medicare Ltd 141,47540.92.6
Apollo Hospitals Enterprise Ltd  7110,20940.24.2
Fortis Healthcare Ltd  265,31043.33.6
Max Healthcare Group  163,40050.15.2
Narayana Hrudayalaya Ltd  216,72528.54.6
KIMS93,06420.65.5
Shalby Ltd  112,01227.43.2
Healthcare Global 222,03632.62.3
  • The average length of stay in hospitals (ALOS) is often used as an indicator of efficiency. Rainbow comes out good on this.
  • Average Revenue Per Occupied Bed (ARPOB) is higher for Rainbow

Listed Peers: Comparison

 CompanyCMP/IPO prFVTTM SalesPAT (In Cr)EPS TTMPERoNW FY21
Rainbow 5421092512712.5438.96%
Apollo Hospitals 4,537513984113378.82583.26%
Fortis Healthcar268105,5915307.0238-0.75%
Max Healthcare 3961016782722.81141-2.47%
Narayana 70510359734116.6942-1.46%
KIMS134910163730938.943523.74%

Rainbow Children Medicare IPO: Assessment

  • Dominant market position in South India in the area of pediatric and obstetrics with the highest number of hospital beds amongst comparable players in the maternity and pediatric healthcare delivery sector.
  • The hub-and-spoke model followed by the hospital has enabled them to evolve from a single secondary care hospital in Hyderabad to now six hospitals in the city.
  • Rainbow Children Medicare is implementing a similar model in Bengaluru and plans to replicate it in Chennai as well as New Delhi.
  • Average revenue per operating bed (ARPOB) is almost comparable to Apollo and much higher than KIMS.
  • This may be attributed to Rainbow’s presence in quaternary and tertiary care.
  • Tertiary care, is a level above secondary health care, that has been defined as highly specialized medical care, usually provided over an extended period of time, that involves advanced and complex diagnostics, procedures and treatments performed by medical specialists in state-of-the-art facilities [
  • Quaternary care has been defined as an extension of tertiary care in reference to advanced levels of medicine which are highly specialised and not widely accessed, and usually only offered in a very limited number. uncommon diagnostic or surgical procedures are considered quaternary care.
  • In case of Rainbow Children Medicare, about 1/3rd beds are in ICU which leads to higher realization and operating margins.
  • The company has a robust track record of performance and has been generating positive cash flow. The Hospital chain has about 200 crore cash on its books and generates about the same every year.
  • Historically Rainbow Children Medicare has been growing at 20 percept rate and growth in last 2 years was muted due to Covid. it reported 30% EBITDA margins for last 9 months which are difficult to sustain, but management has guided for 25% plus margins.
  • From IPO proceeds, Rainbow Children Medicare is adding about 500 beds over the next 3 years. Each Bed approx. entails Rs. 60K investment.
  • Claims have built up a good reputation in its ability to handle complex pediatric tasks and has demonstrated the ability to conceptualize, create and operate specialized children’s hospitals.
  • Despite stretched valuations, Long-term prospects of the company appear good as it operates in a niche segment where margins are relatively better than general hospital chains.
  • The Rainbow Children Medicare IPO has been commanding about Rs. 30 grey market premium as per some reports.
  • I intend to apply in IPO. To what extent will depend on Day 3 QIB numbers.
  • The risk I perceive in Rainbow Children Medicare IPO stem from a steep valuation, possibility of a market melt down in general and after effects of large LIC IPO on the market.

Standard disclaimer: I am not a SEBI registered analyst /investment adviser and above information is collated from various publically available documents, represents my understanding of the IPO and is for educational purpose only. Please do not make your investment decisions based on this info as it is not complete and exhaustive. Please do your own due diligence as stock market investments have high degree of inherent risk.

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