Rainbow Children’s Medicare Ltd – It takes a lot to treat the little
Incorporated in 1998 and headquartered in Hyderabad, Rainbow Children’s Medicare Ltd. is a leading paediatric and perinatal care hospital chain in India. With 19 hospitals and 4 clinics across 6 cities, Rainbow has a bed capacity of 1,935 and employs around 4,000 permanent staff and 800+ doctors, offering comprehensive healthcare services from fertility, maternal care, and paediatrics to gynaecology.
Products and Services
- Paediatric Services: Under “Rainbow Children’s Hospital” brand, it offers paediatric intensive care, multi-specialty services, and quaternary care, including organ transplantation.
- Women Care Services: Branded as “Birthright by Rainbow,” it provides perinatal care, genetic care, fertility treatments, and gynaecology services.
Subsidiaries: The company does not have any subsidiaries, joint ventures, or associate companies as of FY24.
Growth Strategies
- Hub-and-Spoke Model: The company operates super-speciality hubs in cities with 1-2 hospitals (150-250 beds) and regional spokes (50-100 beds) for primary and secondary care.
- Expansion Plans: Rainbow is developing new spoke hospitals in Bengaluru (60 beds), Andhra Pradesh (100 beds), and Coimbatore, with 2 hospitals planned for Gurugram (400 beds total).
- Operational Efficiency: By expanding its network and optimizing resources, Rainbow enhances market penetration and improves patient outcomes.
- Pilot Projects: The launch of the Adult Vaccination Outreach Program (AVON) with major vaccine manufacturers in FY24 marks the company’s entry into new service areas.
Financial Performance
Q1FY25:
- Revenue: ₹330 crore (+15% YoY)
- EBITDA: ₹94 crore (+7% YoY)
- Net profit: ₹40 crore (-5% YoY)
- Occupancy rate: 42%
FY24:
- Revenue: ₹1,297 crore (+10% YoY)
- Operating Profit: ₹429 crore (+7% YoY)
- Net profit: ₹218 crore (+3% YoY)
- Bed capacity added: 280 beds
Financial Performance (FY21-24)
- Revenue CAGR (FY21-24): 26%
- PAT CAGR (FY21-24): 75%
- Average ROE & ROCE (3 years): 22% each
- Debt-to-equity ratio: 0.61
Industry outlook
- The Indian healthcare sector is expanding rapidly, driven by medical tourism, high-end diagnostic services, and increased investment from public and private sectors.
- Growing medical tourism due to India’s cost-competitiveness attracts patients from across the world.
- Strengthened healthcare coverage and increased expenditure continue to fuel industry growth.
Growth Drivers
- Healthcare Budget: Healthcare Budget: ₹90,659 crore allocated under the Interim Union Budget 2024-25, up by 1.69%.
- FDI: 100% FDI is allowed for greenfield projects.
- Hospital Market: Projected to grow from US$ 98.98 billion in 2023 to US$ 193.59 billion by 2032 at a CAGR of 8%.
- Paediatric Market: Expected CAGR of 14% from FY20-26.
Competitive Advantage
Rainbow’s superior return on equity (ROE) and capital employed (ROCE) surpass competitors like Max Healthcare and Fortis Healthcare, showcasing operational efficiency and profitability.
Outlook
- Rainbow is positioned to capture growth opportunities in the paediatric and maternity healthcare sectors through its hub-and-spoke model.
- The expansion of its hospital network and the proven success of the model in Hyderabad are expected to sustain growth.
- Plans to replicate the model nationwide are in progress.
Valuation
The large addressable market of paediatrics and maternity care is expected to have a strong growth trajectory in the future, and we expect Rainbow with its established position and futuristic business strategies to grow in tandem with the market. We recommend a BUY rating in the stock with a target price (TP) of Rs.1,558, 53x FY26E EPS.
Risks
- Regulatory changes can impact cash flows in the highly regulated healthcare sector.
- Intense competition may dilute market share.
Note: Please note that this is not a recommendation and is intended only for educational purposes. So, kindly consult your financial advisor before investing.
Recap of our previous recommendations (As on 13 September 2024)
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