Should You Subscribe to Rainbow Children’s Medicare IPO? | Rainbow Children’s Medicare IPO Detailed Analysis￼6 min read
A multi-specialty pediatric, obstetrics, and gynecology hospital chain in India- Rainbow Children’s Medicare Limited has come up with its Initial Public Offering (IPO). Let’s discuss this IPO in detail with its key strengths and risk in this article as we move ahead.
1) IPO Details:
Rainbow Children’s Medicare- IPO Details
- The IPO Window of Rainbow Children’s Medicare is open from 27th April 2022 to 29th April 2022.
- The Issue Size of the IPO is Rs. 1,581 Cr. which consists of a fresh issue and an Offer for Sale.
- The IPO consists of an Offer for Sale (OFS) worth Rs. 1,301 Cr. While the Fresh Issue is worth Rs. 280 Cr.
- The IPO is getting listed on both the stock exchange- Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
- The price band of the IPO is Rs. 516 to Rs. 542 per equity share.
- The Face Value is Rs. 10 per equity share.
- The Investor Quota of the IPO is as follows Qualified Institutional Buyers (QIB)- 50%, Non-Institutional Investors (NIIs)-15%, and Retail Investors- 35%.
- The IPO Lot consists of 27 shares in 1 lot and multiples thereof up to 13 Lots.
- The Allotment Date for Rainbow Children’s Medicare IPO is 5th May 2022 and it will get listed on the Stock Exchange on 10th May 2022.
- The objective of the Issue :
- Early redemption of NCDs issued by the company in full- Rs. 40 Cr.
- Capital Expenditure towards setting up new hospitals and purchase of medical equipment for such new hospitals- Rs. 170 Cr.
- General Corporate Purposes
- The stake of Promoter’s & Promoter’s Group in the company Pre-IPO was 62.2% which will go down to 49.8% post listing of the IPO.
- The Selling Shareholders are:
- Kancharla and Chirla Family- Worth Rs. 472.96 Cr.
ii) Promoter Group:
- Worth Rs. 32.97 Cr.
iii) Private Equity Investor:
- CDC Group- Rs. 794.50 Cr.
2) About the Company:
- Rainbow Childcare Medicare Limited (RCML) which was incorporated in 1998, is a multi-specialty pediatric, obstetrics, and gynecology hospital chain in India.
- RCML currently operates 14 hospitals and 3 Clinics in 6 cities, with a total bed capacity of 1,500 beds.
- RCML has the highest number of hospital beds amongst comparable players in the maternity and pediatric healthcare delivery sector. As of December 31, 2021, they had 641 full-time doctors, and 1,947 part-time/visiting doctors.
- RCML follows a hub-and-spoke model in Hyderabad, with their Banjara Hills Hospital (comprising 250 beds) being the hub ad 4 spokes at 4 locations in Hyderabad, namely Secunderabad, LB Nagar, Kondapur, and Hydernagar.
- The company is having strong synergies between pediatric, obstetrics, and gynecology services.
- The hospital chain operates on a full-time doctor model ensuring that most of the core specialists are available 24*7.
3) How RCML is different from other listed hospitals:
- One of the biggest differentiators of RCML’s hospital from adult hospitals is the children-centric atmosphere.
- RCML’s children’s hospitals are made vibrant and visually appealing, with bright and congenial interior decorations. Each of the company’s hospitals also has a designated child play area and other entertainment in the patient rooms which comforts the children recovering from treatment.
- Further, a children’s hospital requires a focus on psychological and emotional care, which is different from adult hospitals and the company keeps this understanding at the forefront while treating children. The company believes that doctors, nurses, and other hospital staff need to be soft and gentle while dealing with children and that is manifested in all the aspects of healthcare delivery.
- This shows that the company mainly operates in a very niche segment within the hospital industry.
4) Classification of ailments in the hospital industry:
Source: RCML RHP
- Primary care is the basic form of treatment. As the specialization changes from primary to secondary, secondary to tertiary, and tertiary to quaternary, the margins of the business also increase.
5) Operations & Facilities:
Source: RCML RHPa
- RCML follows a hub-and-spoke model.
- At the hub hospital, they provide comprehensive outpatient and inpatient care with a focus on tertiary and quaternary care, and at their spokes, they provide secondary care in pediatric, obstetrics, gynecology, and emergency services.
- Currently, RCML has its geographical presence in 6 cities across India that are Hyderabad, Bengaluru, New Delhi, Vijaywada, Visakhapatnam, and Chennai. Hyderabad is its biggest market followed by Bengaluru.
- The Sales Mix of the company as of H1FY22 stands as follows: Hospital Services (83%), Pharmacy Services (13%), Medical Service Fee (2%), and Others (2%)
- The company’s presence is mainly concentrated in the Southern part of the country with the Hyderabad cluster having the highest number of bed counts followed by the Bengaluru and Andhra Pradesh clusters.
6) Growth of RCML:
- The company is currently having a bed capacity of 1,500 beds as of 9MFY22 which was 1,162 in FY19.
- The operational bed count was 931 in FY19 and 1,152 in 9MFY22.
- The occupancy rate stood at 46.2% as of 31st December 2021.
- The ARPOB per day has also increased from Rs. 26,696 in FY19 to Rs. 45,951 in 9MFY22.
- The increase in Average Revenue Per Operating Bed (ARPOB) in FY21 and 9MFY22 is mainly because of an increase in tertiary and quaternary care (as opposed to pediatrics which is secondary care) mainly because of post-covid issues arising among children. These are specialized treatments.
7) Financial Performance:
- The revenue of the company has grown at a CAGR rate of 9.43% between FY19 to FY21 from Rs. 543 Cr. in FY19 to Rs. 650 Cr. in FY21, and finally Rs. 761.3 Cr. in 9MFY22.
- The Earnings before Interest, Taxes, and Depreciation & Amortization (EBITDA) of the company has also increased from Rs. 148.5 Cr in FY19 to Rs. 162.8 Cr. in FY21, now which stands at Rs. 256.7 Cr. in 9MFY22.
- The EBITDA margin over the years has remained above 25% and currently stands at 33.7% as of 9MFY22.
- The Net Profit of the company as of 9MFY22 is Rs. 126.4 Cr.
- The company is having a very low debt to equity ratio of just 0.07.
- The Covid tailwinds seem to be high for the company. Specialized care post covid increased and hence these numbers seem to have an unsustainable element of Covid revenues.
8) Peer Comparison:
Source: RCMC RHP
- Among the bigger listed peers of the company, RCML has a lower number of beds, and the number of hospital units is also relatively less. Similar to KIMS, RCML has a high regional concentration in its hospital units.
9) Positives of the IPO:
- Operates in a niche area of expertise where not many other players have a sole focus
- Follows a hub and spoke model which is generally easier to scale.
- In the tertiary and quaternary care business, the business is a high margin area and is growing well.
- The recovery post-Covid in the operations of the company is strong.
- The company is trying to increase digital healthcare initiatives – The company conducted over 125,000 video consultations through its platform during the pandemic9) Positives of the IPO:
10) Negatives of the IPO:
- The geographical presence is limited mainly to Southern India – Mainly dependent on Hyderabad.
- There is intense competition in the sector from bigger players who also have pediatrics, gynecology, and obstetrics as their key divisions.
- The occupancy rates have been low and the ARPOB has a big Covid impact which would be unsustainable.
- The sector has high regulatory compliances which can hinder the growth, revenue, and margins
- Retention of doctors will be a challenge. Since the business depends on high-end specialties, retention of talent without compromising on margins will be a challenge.
- The majority of the issue is OFS with promoters also liquidating some stake in the IPO.
Source: RCML RHP
- Compared to Mar-21 earning numbers, the PE of the company is high. However, the earnings during this period were depressed due to the Covid impact, and hence, this ratio might not be a fair indicator of the company valuation.
- If we compare the PE ratio to TTM numbers, the EPS of the company is around Rs. 13.53. The comparative valuations as per this data stand as follows: PE Ratio of RCML stands at 40.13 ranging similar to the other players in the hospital industry of India.
Should you Invest?
Currently, the Grey Market of this IPO is around Rs. 30 per share, and hence a listing gain of Rs. 5 is available. Investors who are looking at this stock for the long-term, should wait for a while and analyze the performance of the company for a few more quarters, and then should take a call.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.