Rainbow Children’s Medicare IPO opens Wednesday; should you subscribe?

NEW DELHI: The initial public offer (IPO) of Rainbow Children’s Medicare, a hospital chain that operates multi-speciality paediatric and obstetrics and gynaecology hospitals in South India, will open for subscription on Wednesday.The company will raise Rs 1,581 crore through its initial stake sale. The company will issue fresh equity shares worth Rs 280 crore and existing shareholders and promoters will offload 2.4 crore equity shares from their stake through OFS.Analysts believe that at the price band of Rs 516-542 in which the company is selling its shares, it is fully priced in, when compared to its market peers.“Based on 9MFY22 numbers, the IPO is priced at a Price to Earnings (PE) of 30.4 times and EV/EBITDA of 13.8 times at the upper price band, which is in line with the listed peer group,” said Yash Gupta- Equity Research Analyst, Angel One.“Company’s revenue and return ratios have improved significantly in 9MFY22, but we don’t expect the company can maintain this growth in the near future. Given the expensive valuation, we are assigning a Neutral recommendation to the Rainbow Children’s Medicare IPO.”The company plans to use the money raised through share sales for paying debt, setting up new hospitals and purchasing medical equipment for such new hospitals and general corporate purposes. Rainbow Hospital currently operates 14 hospitals and three clinics in six cities with a bed capacity of 1,500.Among the key positives that analysts say are:More than 70 per cent of the current bed capacity are matured beds, having higher occupancy ratioIt has a dominant market position in South India for paediatric and obstetrics.The company has a hub-and-spoke model in South India -- provides synergies and better care for patients.Conversely, key risks are:Increase in competition in the south and north Indian market.It will be challenging for the company to maintain EBITDA margins as it plans to increase beds by 500 in the next 4-5 years.After the IPO, promoter group shareholding will go down to 49.8 per centARPOB (average revenue per occupied bed) has increased by 57 per cent in the last two years. It will be difficult for the company to increase ARPOB from these levels and will create pressure on EBITDA margins. Santosh Meena, Head of Research, Swastika Investmart, said that the company followed a financially disciplined model, focusing on cost-effective growth. Going forward, they may seek to expand their hospital network through acquisition of Brownfield assets or the development of Greenfield assets.“This issue is a combo of OFS and fresh issue and is priced at a PE of 43.53 on the annualized FY22 numbers. The profitability for nine months ended 31st December 2021 increased substantially to 126.41 crores from 38.53 crores in the same period of last fiscal. There might be a possibility that this sudden spurt in profitability was due to covid second wave hospitalizations in Q1FY22.”“We believe that this exponential rise in profit might not continue in the future. However, the specialized nature of the business, experienced management team, proven ability to attract, train and retain high-calibre medical professionals, under penetration of hospitals in India, make this issue good for long-term investors.”

Rainbow Children’s Medicare IPO opens Wednesday; should you subscribe?
NEW DELHI: The initial public offer (IPO) of Rainbow Children’s Medicare, a hospital chain that operates multi-speciality paediatric and obstetrics and gynaecology hospitals in South India, will open for subscription on Wednesday.The company will raise Rs 1,581 crore through its initial stake sale. The company will issue fresh equity shares worth Rs 280 crore and existing shareholders and promoters will offload 2.4 crore equity shares from their stake through OFS.Analysts believe that at the price band of Rs 516-542 in which the company is selling its shares, it is fully priced in, when compared to its market peers.“Based on 9MFY22 numbers, the IPO is priced at a Price to Earnings (PE) of 30.4 times and EV/EBITDA of 13.8 times at the upper price band, which is in line with the listed peer group,” said Yash Gupta- Equity Research Analyst, Angel One.“Company’s revenue and return ratios have improved significantly in 9MFY22, but we don’t expect the company can maintain this growth in the near future. Given the expensive valuation, we are assigning a Neutral recommendation to the Rainbow Children’s Medicare IPO.”The company plans to use the money raised through share sales for paying debt, setting up new hospitals and purchasing medical equipment for such new hospitals and general corporate purposes. Rainbow Hospital currently operates 14 hospitals and three clinics in six cities with a bed capacity of 1,500.Among the key positives that analysts say are:More than 70 per cent of the current bed capacity are matured beds, having higher occupancy ratioIt has a dominant market position in South India for paediatric and obstetrics.The company has a hub-and-spoke model in South India -- provides synergies and better care for patients.Conversely, key risks are:Increase in competition in the south and north Indian market.It will be challenging for the company to maintain EBITDA margins as it plans to increase beds by 500 in the next 4-5 years.After the IPO, promoter group shareholding will go down to 49.8 per centARPOB (average revenue per occupied bed) has increased by 57 per cent in the last two years. It will be difficult for the company to increase ARPOB from these levels and will create pressure on EBITDA margins. Santosh Meena, Head of Research, Swastika Investmart, said that the company followed a financially disciplined model, focusing on cost-effective growth. Going forward, they may seek to expand their hospital network through acquisition of Brownfield assets or the development of Greenfield assets.“This issue is a combo of OFS and fresh issue and is priced at a PE of 43.53 on the annualized FY22 numbers. The profitability for nine months ended 31st December 2021 increased substantially to 126.41 crores from 38.53 crores in the same period of last fiscal. There might be a possibility that this sudden spurt in profitability was due to covid second wave hospitalizations in Q1FY22.”“We believe that this exponential rise in profit might not continue in the future. However, the specialized nature of the business, experienced management team, proven ability to attract, train and retain high-calibre medical professionals, under penetration of hospitals in India, make this issue good for long-term investors.”