Rainbow Children’s Medicare IPO

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(i) Rainbow is a leading multi-specialty pediatric and obstetrics and gynecology hospital chain in India, operating 14 hospitals and three clinics in six cities, with a total bed capacity of 1,500 beds. The company’s core specialties are pediatrics, which includes newborn and pediatric intensive care, pediatric multispecialty 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.

(ii) They have also expanded its operations to include obstetrics and gynecology services, whereby we offer comprehensive perinatal services to patients. The company follows a doctor engagement model whereby most of its core specialists work exclusively at its hospitals on a full-time retainer basis. This model ensures that most of their core specialists are available 24/7 on a roster basis at their hospitals, which is particularly important for children’s emergency, neonatal and pediatric intensive care services.

(iii) A number of doctors in neonatal, pediatric intensive care, pediatric sub specialties, obstetrics and gynecology are trained or possess qualifications from the United Kingdom, United States, Canada and Australia, which provides them with a competitive advantage. The company enter into retainership contracts with their newly hired doctors covering the initial two to three year periods, which provides them with stability and makes it a desirable workplace.

Key Financial Parameters of Raibow Hospitals

KYC Parameter 2021 2020 2019
Bed capacity 1,475 1,296 1,162
Operational beds 1,132 1,001 931
Occupancy rate (%) 34.23% 56.27% 54.13%
Inpatient volume 51,165 66,871 53,422
Outpatient volume 624,111 941,049 787,345
Number of full-time doctors 593 596 498
Number of nurses 1,169 1,485 1,401
ARPOB (₹) 14,925,896 10,715,405 9,744,124
ALOS (days) 2.57 3.05 3.2
Basic EPS 4.36 5.98 4.83
RoE 8.82% 13.52% 11.98%
RoCE 10.48% 16.32% 11.68%

Competitive Strengths:

  1. Ability to conceptualize, create and operate specialized children’s hospitals.
  2. Leading pediatric multi-speciality healthcare chain with strong clinical expertise in managing complex diseases.
  3. Comprehensive perinatal care provider, with synergies between pediatric and obstetrics and gynaecology services.
  4. The hub-and-spoke model provides synergies and ensures better care and access for patients.
  5. Strong track record of growth, and operational and financial performance.
  6. Experienced senior management team with strong institutional shareholder support.

Objects of the Rainbow Children’s Medicare IPO:

The Offer comprises the Fresh Issue and an Offer for Sale by the Selling Shareholders. The Company proposes to utilize the Net Proceeds towards funding the following objects: 1. Early redemption of NCDs issued by the Company to CDC Emerging Markets Limited (“CDCEML”), one of the Group Companies, in full 2. Capital expenditure towards setting up of new hospitals and purchase of medical equipment for such new hospitals 3. General corporate purposes.
DRHP of Rainbow Children’s Medicare IPO
RHP of Rainbow Children’s Medicare IPO

Rainbow Children’s Medicare IPO Details:

Open Date: Apr 27 2022
Close Date: Apr 29 2022
Total Shares: 24,000,900
Face Value: ₹ 10 Per Equity Share
Issue Size: 1595.59 Cr.
Lot Size: 27 Shares
Issue Price: ₹ 516-542 Per Equity Share
Listing At: NSE,BSE
Listing Date: May 10 2022

Promoters And Management:

i. Dr. Ramesh Kancharla is the Chairman and Managing Director of the Company. He holds a Bachelor of Medicine and Bachelor of Surgery (“MBBS”) from Sri Venkateswara University and a Doctor in Medicine (“MD”) in paediatrics from Mangalore University. He is a member of the Royal Colleges of Physicians of the United Kingdom. He has over 23 years of experience with the Company. Prior to setting up the Company, he was associated with King’s College Hospital, where he completed his specialist training in paediatric gastroenterology, hepatology and nutrition. He is awarded with the Lifetime Achiever of the Year in Pediatric Gastroenterology & Hepatology by Times of India in the year 2017 and the award for the best healthcare professional at the Telangana’s Best Healthcare Professional Awards, 2017. In 2018 he was awarded the Entrepreneur of the Year award by the Sakshi Media Group. ii. Dr. Dinesh Kumar Chirla is the Whole-time Director of the Company. He holds a MBBS degree from Marathwada University, Doctor of Medicine in paediatrics from Dr. Babasaheb Ambedkar Marathwada University, Doctor of Medicine in Neonatology from the University of Mumbai. He is a member of the Royal College of Paediatrics and Child Health, London. He is on the Specialist Register in Neonatology at the Specialist Training Authority of the Medical Royal Colleges, London and was a fellow in Neonatology at Mercy Hospital for Women. iii. Aluri Srinavasa Rao is an Independent Director of the Company. He was appointed to the Board on March 15, 2019. He holds a Bachelor of Pharmacy (Honours) from the Birla Institute of Technology & Science, Pilani, and a Master of Business Administration (“MBA”) from Osmania University, Hyderabad. He has completed Global Executive Leadership Program from Yale School of Management and has completed Master of Science in Management from University of London, London Business School. He has over 22 years of experience. He has worked at Natco Pharma Limited in several capacities. He has also headed the operations as the Managing Director at Morgan Stanley Private Equity Asia and has also worked at ICICI Venture. He also serves as a member of the Board of several pharmaceutical companies like Medisys Eductech Private Limited, Qunu Labs Private Limited, Janaadhar (India) Private Limited.

Financials of Rainbow Children’s Medicare IPO:

Particulars (in Cr.) Dec-21 Mar-21 Mar-20 Mar-19
Sales 761 650 719 543
Medical Consumables and Pharmacy Items Consumed 161 103 105 80
Employee Benefits Expense 84 102 109 86
Other Expenses 259 282 308 228
Operating Profit 257 163 197 149
OPM % 33.77% 25.08% 27.40% 27.44%
Other Income 13 10 10 8
Finance Cost 37 44 45 39
Depreciation 61 73 69 60
Profit before tax 172 56 93 58.00
Total Tax Exps 45 16 38 13
Net Profit 126 40 55 45
NPM % 16.56% 6.15% 7.65% 8.29%
No. of shares 10.15 10.15 10.15 10.15
EPS 13.39 4.36 5.98 4.83

Comparison With Peers:

Name of the Company Sales (In Cr.) PAT (In Cr.) EPS PE RoCE Mcap Returns 3Y Sales Growth (3Y)
Rainbow Children’s Medicare 867 53 17.85 30.36 4.79% 5,501 NA 59.69%
Apollo Hospitals Enterprise Ltd 13,984 1,133 78.8 79 8.44% 69,275 288% 45.41%
Fortis Healthcare Ltd 5,592 530 7.02 57.8 5.59% 20,765 97% 25.13%
Narayana Hrudalaya Ltd 3,597 341 16.7 42 1.62% 14,321 236% 25.73%
Max Healthcare Institute Ltd 1,679 272 2.81 145 3.55% 39,299 265% 66.57%
Krishna Institute of Medical Sciences Ltd 1,637 310 38.9 35.1 29.60% 10,935 34% 78.32%
Notes: 1. Share Price for calculating PE is taken as on 22-04-2022. 2. All data is taken from FY22. 3. Krishna Institute of Medical Sciences is list on the month of July 2021. So, returns of 1 year is taken.

Recommendation on Rainbow Children’s Medicare IPO:

Review and Recommendation of  Rainbow Hospital IPO by InvestorZone is 6/10 1. Rainbow Hospitals mostly generate revenue from Hyderabad, Telengana and Bengaluru. Almost 80% of the patients volume comes from these three areas. So, highly dependent on these three states. 2. Revenue has grown from ~540 Crores to ~650 Crores from FY19 to FY21. 3. The first 9MFY22 profit is ~125 Crores. Annualise Profit would be ~160 Crores.  With, ~11 Crores shares outstanding after IPO, EPS= 14.54 4. P/E = 38x 5. Company is generating healthy free cash flows in the last 3 years.

Lead Manager of Rainbow Children’s Medicare IPO:

  1. IIFL Holdings Limited
  2. J.P. Morgan India Private Limited
  3. Kotak Mahindra Capital Company Limited

Registrar of Rainbow Children’s Medicare IPO:

  1. Kfin Technology Private Limited

Company Address:

Rainbow Children’s Medicare Limited 8-2-120/103/1, Survey No. 403, Banjara Hills, Hyderabad – 500 034 Phone: + 91 40 49692244 Email: companysecretary@rainbowhospitals.com Website: https://www.rainbowhospitals.in/

Discussion on Rainbow Children’s Medicare IPO:

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