Rainbow Children's Medicare: Offers little scope for appreciation
The asking price is a little on the higher side and one may look at the company post listing if the share is available at slightly lower prices
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Rainbow Children's Medicare Limited is tapping the markets with its fresh issue for Rs280 crore and an offer for sale of 2.40 crore shares in a price band of Rs516-542. The issue will open on Wednesday (April 27) and close on Friday April (29). The issue at the top end of the price band would garner Rs1,581 crore.
The company as the name suggests is one of India's largest paediatric multi-speciality hospital chains having 14 hospitals and 3 outpatient clinics. These are located in six cities and with 1,500 operational hospital beds. They are a very large obstetrics and gynaecology service provider rendering quality service to its patients. They have in this area a brand known as 'Birthright by Rainbow'. Their area of domination is Hyderabad and Bengaluru which accounts for more than 75 per cent of their total revenues. The hospital company is building on its hub and spoke model to grow their geographical presence. It has entered with a hospital in Delhi and added one more, and would be growing their chain in NCR region in the near future. One advantage in the NCR region is that there are dedicated plots available for hospitals which are far cheaper than prevailing land prices, making owning of land a possibility. Over the next three years they would be adding 500 beds in a phased manner, details of which have been shared and finalised in the document.
The company is looking at growing its presence and would explore the merger and acquisition route as well. It is open to acquiring existing hospitals and refurbishing them to suit their requirements. As part of their hub and spoke model they have 730 beds across Hyderabad in 6 hospitals and clinics.
They are looking at expanding in the Nort East as well. This would be a hub and spoke model with one principal hospital and smaller hospitals across the north eastern states and make them a leading player in the region. The above plan is yet to materialise and would take longer than the three years in which 500 beds are to be added.
The company has formed a nice regional level 'South connect' in a rectangle form on the map of India. They have hospitals in Hyderabad, Vijayawada, Chennai and Bengaluru. They are also present in Vishakhapatnam. The opportunity to expand with spokes in nearby cities with a range of 200-250 kms is in cities of Rajahmundry, Nellore, Kurnool, Madurai, Coimbatore and Mysore.
The majority of doctors who are part of the hospital are full time associated with the hospital which ensures that the company gets its fair share of revenues. Currently the company has 600 plus full-time doctors. There is also an ownership scheme formulated for doctors which brings about continuity and a sense of ownership amongst the doctors.
The company reported revenues of Rs761.3 crore for the nine months ended December 21, adjusted EBITDA of Rs256.7 crore and a profit after tax of Rs126.4 crore. Their EBITDA margins over the last three financial years 2019-2021 have been in the region of 25-27 per cent while they have improved significantly to 33.7 per cent in the nine months period ended December 2021. Similarly, PAT which was in the region of 6.10 per cent - 8.21 per cent has doubled to 16.60 per cent in the nine months period. While there could be benefits of lockdown being lifted across the country benefiting the chain as procedures which could be delayed have now happened, the margins could see some pressure going forward. There is however a silver lining in the fact that their average occupancy or capacity utilisation is around 50 per cent. This is expected to increase to around 60 per cent in the medium term which would add to revenues. This increase should see margins at EBITDA level stabilising closer to the 28-30 per cent level in the near term.
The EPS for the period would be Rs13.12 on a fully diluted basis for the nine months. If one were to annualise the same it would be Rs 17.49, the PE band on the fully diluted and annualised EPS for the year ended March 2022 would be 29.50-30.99 times. While there is currently no listed peer in the children's hospital range, Cloud nine has recently filed its document to tap the markets as well.
The asking price is a little on the higher side and offers little scope for appreciation on listing.The funds being raised at roughly Rs 1,581 crores are not small. One may look at the company post listing if the share is available at slightly lower prices. Readers should note that considering new subscription norms, subscription levels will be substantially lower than earlier and there would therefore be a lower grey market premium as the funding cost element would be missing. Look to buy the share on dips or post the annual results for March 2022 being declared.
