RAINBOW is India's largest pediatric & obstetrics hospital play
Grants attractive exposure to a high growth segment thanks to solid financials and a promising expansion pipeline
Rainbow Children’s Medicare Limited (NSE: RAINBOW) is India’s largest pediatric & obstetrics care hospital group operating ~1,715 beds in 17 hospitals | Across 4 states + Delhi NCR | With a team of 775+ consultants.
The group was established in 1999 and is set up as a hub and spoke healthcare delivery network across North and South India…over the years demonstrating solid operational and financial performance.
Why pediatrics is promising?
India’s maternity and pediatric care segment comprises 33% of its total healthcare delivery market, and is expected to hit $33.5bn by 2026 growing at a brisk CAGR of 12%.
Private hospitals hold a 60%+ market share amounting to $20bn. Healthcare in general and pediatrics in particular are broadly well positioned to grow thanks to rising GDP per capita, rising urbanization, and mass affluent aspirations.
What makes Rainbow Hospitals a reliable bet?
RAINBOW is the largest and only listed vertically focused pediatric and obstetrics care hospital in the country. They follow a multi-disciplinary approach offering all pediatric and maternal related healthcare services under one roof. Their credibility is further enhanced by ensuring multiple touch points in cities under the hub & spoke model, wherein every operational city has a hub with 150-250 beds providing tertiary and quaternary care combined with spoke hospitals with 50-150 beds providing primary and secondary care infrastructure.
Improving financials + significant room for growth = more reliable bet
Revenue/EBITDA grew by a CAGR of 18%/26% over FY20-FY23, driven by 8% CAGR in beds and increasing occupancy levels. EBITDA/PAT margins are industry leading and stood at 33.8%/18.0% in FY2023. ROCE/ROE margins were at 18%/25% and debt-to-Equity stood at 0.53x mainly due to Lease Liabilities created for upcoming hospitals.
FY2023 witnessed a steep rise in occupancy at 55.4% v/s 44.6% in FY2022 backed by maturing hospitals, in parallel growing ARPOB by 19% during FY2020-FY2023 to ₹49k as at FY2023. In-Patient/Out-Patient volume grew at 9%/10% CAGR during FY2020-FY2023. ALOS improved marginally from 3.65 Days in FY2022 to 3.52 Days in FY2023.
9MFY2024 Highlights: Revenue/EBITDA grew at 11.6%/8.4% YoY to INR 956 Cr/323 Cr. Occupancy for the period ended 9MFY2024 stood at 47.7% v/s 54.1% in 9MFY2023 due to new beds signaling enough room for growth. New Hospitals (<5yrs) represent a substantial 57% of total beds witnessing 33.6% occupancy v/s Matured Hospitals witnessing a much higher 55.1% occupancy during the quarter, signaling implied growth as newer assets gain traction. ARPOB was observed to grow by 14.2%YoY to ₹56.5k.
Partial support for stock rally thanks to marginal underpricing
RAINBOW currently trades at 58.0x TTM P/E and 29.3 EV/TTM EBITDA, at par with FORTIS which is at 58.4x TTM P/E and 26.5 EV/TTM.
MAXHEALTH, MEDANTA, and APOLLOHOSP all trade at a significant premium, despite demonstrating lower differentiation, growth, ROE, and ROCE.
Promoters own 49.8% of outstanding shares, while 12.2% is held by retail investors.
Our Position
As new assets mature and the sector rises on a wave of aspirational growth in demand, RAINBOW would be well positioned to yield long term returns.
We are LONG on the stock and continue to maintain a positive outlook.
Disclaimer: The views expressed above are the views of Arkvega Partners LLP, and are subject to change at any time based on market and other conditions. This is neither an offer nor solicitation for the purchase or sale of any security, and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. We strongly advise you to do your own research and consult an accredited investment advisor before investing based on what you read in a newsletter. Arkvega Partners LLP or its employees may have exposure in the financial instrument discussed above and can close positions in the future without prior intimation.