Rainbow Children’s Medicare Ltd IPO
Published by Sharekhan Education | April 28, 2022
Rainbow Children’s Medicare Ltd IPO
Amit Pathak | Sharekhan Education
About the IPO
- Issue Size: Rs. 1518.5 – 1580.9 Cr
- Price band: Rs.516-Rs.542
- Face Value: Rs. 10
- Issue open & close: 27th Apr 2022 & 29th Apr 2022
- Bid Lot: 27 Equity shares and multiples thereof
About the Company
Rainbow Children’s Medicare Ltd (RCML) is a leading multi-speciality hospital chain in India, operating 14 hospitals with a total bed capacity of 1,500 beds. Their core specialities are paediatrics, obstetrics and gynaecology. It follows a hub-and-spoke model in Hyderabad with Banjara Hills hospital (comprising 250 beds) being the hub. At its hub hospital, it provides comprehensive outpatient and inpatient care. At the spokes, it provides secondary care and emergency services.
Objects of Issue
The Offer comprises of Fresh Issue of Rs 280 crores and an Offer for Sale of around Rs 1300 crores. The net proceeds are proposed to be utilized for early redemption of NCDs issued by RCML and capital expenditure towards the setting up of new hospitals. Listing of the equity shares on the Stock Exchanges will result in the enhancement of its brand name. The price band of the issue is Rs. 516-542.
Industry Overview
The healthcare delivery market is expected to grow at 15-17% CAGR and reach Rs.7.67 trillion by FY 2025. A rise in demand for health infrastructure, modern technologies and multi-disciplinary healthcare has led to consolidation in the industry. Larger hospital brands typically have the financial discipline & negotiating power with suppliers, better ability to attract medical talent, and greater capital & administrative resources vis-a-vis standalone hospitals. The long term goal of the govt. is to raise its healthcare spending to 2.5% of GDP by 2025 under the National Health policy 2017 from the current 1.3% of GDP.
Competitive Strengths
RCML has been able to attract and retain high-quality medical professionals. They follow a doctor engagement model whereby most of their core specialists work exclusively at their hospitals on a full-time basis. This model ensures that most of their core specialists are available 24/7 on a roster basis across their hospitals.
RCML has successfully executed a hub-and-spoke model in Hyderabad. Under this model, their super-speciality doctors based at their hub hospital are able to reach out to the larger community and cover a larger catchment area. They plan to replicate this model in Bengaluru, Chennai and New Delhi-NCR.
“Rainbow Children’s Hospital” mobile application is one of the cornerstones of their digital strategy. They are in the process of implementing an AI-enabled content management engine to support the application, which will be able to process large amounts of patient data to provide them with insight into patient needs. During the COVID-19 pandemic, they conducted over 125,000 outpatient video consultations through their video consultation platform.
RCML drives performance efficiencies by focusing on centralized and standardized procurement of medical equipment, consumables and pharmaceuticals. RCML specializes in pediatric care. Their ability to conceptualize, create and operate children’s hospitals remains critical to their success.
Key Concerns
RCML faces a concentration risk. Its revenues are highly dependent on hospitals in Hyderabad and Bengaluru. It is also significantly dependent on certain specialities for the bulk of its revenues. And since it operates in a highly regulated industry, it is exposed to legal claims and regulatory actions arising from the claims of malpractice and medical negligence, which could materially and adversely affect the reputation and future prospects of the hospital chain.
Financials
RCML posted a topline 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 during the pandemic. EBITDA and the net margins were 35.40% and 16.33% respectively during 9MFY22. EBITDA margins were 28.90%, 28.83% and 26.63% respectively for FY21, FY20 and FY19. The profitability margins have remained strong over the last three fiscals. Return on Equity was 6.70%, 12.40% and 11% respectively for FY21, FY20 and FY19 respectively.
At the upper price band of 542, it is valued at ~36.4x EV/EBITDA for FY21 and ~22.9x EV/EBITDA for 9MFY22. On the basis of stable fundamentals and a strong sector outlook, we are having a positive view of the company.
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