Rainbow Children’s Medicare is a
leading multi-specialty pediatric, obstetrics and gynecology hospital chain in
India, operating 14 hospitals and three clinics in six cities, with a total bed
capacity of 1,500 beds, as of December 31, 2021. Company has the highest number
of hospital beds amongst comparable players in the maternity and pediatric
healthcare delivery sector, as of March 31, 2021.
Its core specialties are
pediatrics, which includes newborn and pediatric intensive care, pediatric
multi-specialty services, pediatric quaternary care (including multi organ
transplants); and obstetrics and gynecology, which includes normal and complex
obstetric care, multidisciplinary fetal care, perinatal genetic and fertility
care.
Company established its first
pediatric specialty hospital in 1999 in Hyderabad. Since then, under the
leadership of Dr. Ramesh Kancharla, its founding Promoter, company has
established reputation as a leader in multi-specialty pediatric services, with
strong clinical expertise in managing complex diseases. It has also expanded
operations to include obstetrics and gynecology services, whereby company
offers comprehensive perinatal services to patients.
Pediatric healthcare market in
India to grow from Rs 1,01,000 crore as of March 31, 2021 to Rs 2,10,000 crore
by the end of the financial year 2026, at a CAGR of 13%. Company is well placed to benefit from this
expected growth in the industry.
Company follows doctor engagement
model whereby most of its core specialists work exclusively at hospitals on a
full-time retainer basis. This model ensures that most of core specialists are
available 24/7 on a roster basis at the hospitals, which is particularly
important for children’s emergency, neonatal and pediatric intensive care
services. As of December 31, 2021, company had 641 full-time doctors and 1,947
part time/visiting doctors. Successful adoption of this doctor engagement model
across hospitals, has led to a high degree of full-time doctor retention (at
81% for the period from April 1, 2019 to March 31, 2021).
Its delivery volume has grown from
10,632 deliveries in the financial year 2019 to 12,582 and 13,287 in the
financial years 2020 and 2021, respectively, recording a CAGR of 11.79%. As a
result of its unique full-time doctor engagement model and teamwork,
approximately 85.00% of deliveries are done by fulltime in-house doctors. Going
forward, company is focused on providing comprehensive obstetrics and
gynecology services at all its current and future hospitals, which will help in
enhancing patient and revenue base.
Company expanded its hospital
network and increased its bed capacity from 1,162 beds as of March 31, 2019 to
1,500 beds as of December 31, 2021. Over the same period, company increased the
number of hospitals from 10 to 14. Going forward, company is open to expand
hospital network through the acquisition of brownfield assets or development of
greenfield assets (depending upon the location of the hospital and the
timelines to complete the project).
Company follow a hub-and-spoke model in Hyderabad,
with its Banjara Hills hospital (comprising 250 beds) being the hub and four
spokes at four locations in Hyderabad, namely Secunderabad, LB Nagar, Kondapur
and Hydernagar. At hub hospital, it provides comprehensive outpatient and
inpatient care with a focus on tertiary and quaternary care and, at spokes, it
provides secondary care in pediatric, obstetrics and gynecology and emergency
services. This model has strengthened
market position in and around Hyderabad.
Company plans to increase its reach
to patients through a robust digital ecosystem. In the period from April 1,
2020 to March 31, 2021, company conducted over 125,000 outpatient video
consultations through its video consultation platform. Out of these video
consultations, a significant number were from locations where it does not have
a physical presence (within India and abroad). Further, some of the patients
who consulted through these video consultations subsequently required further
treatment on an inpatient basis as well at its hospitals.
Company’s ARPOB/day (average
revenue per occupied bed per day) increased from Rs 40,893 in FY2021 to Rs 45,951
in 9M FY22. Its occupancy rate also increased from 34.23% in FY21 to 46.18% in
9M FY22.
Company intends to expand its
quaternary care operations. At Banjara Hills in Hyderabad, Telangana (hub),
company commenced providing pediatric quaternary care services in 2019. It plan
to build similar capabilities in its hospitals in Bengaluru, Karnataka,
Chennai, Tamil Nadu and New Delhi- NCR.
Offer and its objects
The IPO comprise of fresh issue of
equity shares worth up to Rs 280 crore and an offer for sale of Rs 1300.84
crore on upper price band, by existing shareholders- Dr. Ramesh Kancharla, Dr.
Dinesh Kumar Chirla, Dr. Adarsh Kancharla, British International Investment
plc, CDC India and Padma Kancharla.
Price band for the IPO is Rs 516 to
Rs 542 per equity share of face value Rs 10 each.
Objectives for the fresh issue are-
Early redemption of NCDs issued by the Company to CDC Emerging Markets of Rs 40
crore, Capital expenditure towards setting up of new hospitals and purchase of
medical equipment for such new hospitals of Rs 170 crore and remaining amount
will be used for General corporate purposes.
Promoters of the Company are Dr.
Ramesh Kancharla, Dr. Dinesh Kumar Chirla and Dr. Adarsh Kancharla. Promoters
and promoter group holds an aggregate of 59,912,3 84 equity Shares, aggregating
to 62.19% of the pre-Offer issued and paid-up Equity Share capital. The post
IPO shareholding for the same is expected to be around 50.43%.
The issue, through the book-building process, will open on 27
April 2022 and will close on 29 April 2022.
Strengths
Company has demonstrated the ability to conceptualize, create
and operate specialized children's hospitals. Each of its hospitals also have a
designated child play area and other entertainment in the patient rooms which
comforts the children recovering from treatment.
It is one of India’s largest multi-specialty pediatric care
providers (based on hospital beds, as of March 31, 2021), with a presence
across various specialties such as neurology, nephrology, gastroenterology,
oncology and cardiology. In addition, company provide complex multi-specialty
tertiary intensive care at its hub hospitals, which provides a significant
competitive advantage.
Company has a leadership position in pediatrics, especially
in relation to complex diseases.
Company has a track record of delivering strong financial
performance, its consolidated revenue from operations for the nine months
period ended 31 December 2021, nine months period ended 31 December 2020,
financial years 2021, 2020 and 2019 was Rs 761.31 crore, Rs 486.17 crore, Rs
650.04 crore, Rs 719.39 crore and Rs 547.29 crore, respectively. Revenue grew
at a rate of 56.59% from 9M FY20 to 9M FY21.
Its expansion into obstetrics and gynecology in 2007 to offer
comprehensive perinatal services, increased synergies between pediatric and
obstetrics and gynecology services. As many pregnancies require deliveries in a
comprehensive perinatal ecosystem, to address incidents of high-risk
pregnancies, babies requiring immediate surgical interventions and other
neonatal interventions right after birth.
Company’s ability to offer integrated pediatric, along with
obstetric and gynecologic services, enables it to provide very effective and
cost-efficient one-stop healthcare solutions to families.
Company’s hub and spoke model has enabled it to evolve from a
single secondary care hospital in Hyderabad, Telangana to six hospitals in the
city and as an established provider of tertiary and quaternary care services at
its hub hospitals.
Company has adopted the doctor engagement model across its
hospitals, which has led to a high degree of full-time doctor retention (at 81%
for the period from April 1, 2019 to March 31, 2021). Its ability to attract,
train and retain high caliber doctors, is a significant competitive strength
for business.
Company has experienced senior management team led by Dr.
Ramesh Kancharla, founding Promoter, Chairman and Managing Director. He has
over 23 years of experience in the United Kingdom and India in the field of
pediatrics, pediatric gastroenterology, liver diseases and liver
transplantation.
Weaknesses
Company is dependent on medical professionals and its
business could be impacted if unable to attract and retain such medical
professionals. The attrition rate for permanent employees, which includes
nurses (including interns and paramedical personnel) was 26.74%, 45.50%, 38.75%
and 35.41% for the nine months ended December 31, 2021 and the financial years
2021, 2020 and 2019, respectively.
Company’s revenues are highly dependent on its hospitals in
Hyderabad and Bengaluru. Company is also significantly dependent on certain
specialties for a majority of revenues. Any impact on the revenues from these
hospitals or specialties could materially affect business.
Company operates in a regulated industry. Any non compliance
with applicable safety, health, environmental, labor and other regulations may
adversely affect business.
The healthcare industry and, in particular, the pediatric,
obstetrics and gynecologic healthcare markets, are highly competitive in India.
If company is unable to compete effectively its market share, business and
financial condition could be materially and adversely affected.
If company unable to maintain bed occupancy rates at
sufficient levels, it may not be able to generate adequate returns on capital
investments, which could materially and adversely affect revenue and profitability.
In the financial year 2021, despite an increase in number of available beds,
number of hospitals and average revenue per occupied beds, there was a decline
in revenue compared to the financial year 2019, owing to a decline in bed
occupancy rate. For the financial years 2019, 2020 and 2021, and the nine
months ended December 31, 2021, bed occupancy rate was 54.13%, 56.27%, 34.23%
and 46.18%, respectively.
Company’s patients pay for inpatient and outpatient services
through a mix of cash on-site and credit arrangements, including through
third-party payers such as private and public insurers. If payment is not
received on time its business may be adversely affected. For financial years
2019, 2020 and 2021 and the nine months ended December 31, 2021, bad debts
written off amounted to Rs 16.9 lakh, Rs 17.9 lakh, Rs 31.5 lakh and Rs 11.5
lakh, respectively.
As of December 31, 2021, its borrowings (current and
non-current) amounted to Rs 40.68 crore on a consolidated basis. Non-convertible
debentures issued by the company contain certain restrictive covenants. These
restrictions may limit flexibility in responding to business opportunities,
competitive developments and adverse economic conditions.
Company rely on third-party suppliers, manufacturers and
services providers for supplies and equipment and other services. Failure of
such third parties to meet their obligations could adversely affect its
business.
Company’s profitability is dependent on the cost of medical
consumables, pharmaceuticals and surgical instruments. If company fails to
achieve favorable pricing from suppliers, its profitability could be materially
affected. For the financial years 2019, 2020 and 2021, and the nine months
ended December 31, 2021 expenses relating to medical consumables and pharmacy
items consumed amounted to Rs 80.21 crore, Rs 105.31 crore, Rs 103.26 crore,
and Rs 160.96 crore, respectively, representing 16.25%, 16.55%, 17.08%, and
26.72% of total expenses, respectively.
Company’s business is affected by seasonality. Typically,
fewer patient visits during the months of March to May, which are the school
examination and vacation periods. Therefore its operating results have
fluctuated and are expected to continue to vary from period to period.
Valuation
For FY 2021, consolidated
sales were down by 9.64% to Rs 650.05 crore compared to FY 2020. OPM decreased
by 234 bps to 25.05% which led to 17.36% decrease in operating profit to Rs 162.83
crore. Other income decreased 0.80% to Rs 10.26 crore, while interest cost fell
1.22% to Rs 44.06 crore and depreciation increased 5.66% to Rs 73.34 crore. PBT
decreased 40.35% to Rs 55.69 crore. Tax expenses for FY2021 was of Rs 16.13
crore compared to tax expense of Rs 38.02 crore in FY2020. Minority interest
for FY2021 was negative Rs 0.45 crore compared to negative Rs 0.39 crore in
FY2020, Net profit went down 28.21% to Rs 40.01 crore.
For 9M FY22, consolidated
sales were up by 56.59% to Rs 761.31 crore compared to 9M FY21. OPM increased
by 687 bps to 33.72% which led to 96.67% increase in operating profit to Rs
256.74 crore. Other income increased 56.99% to Rs 12.75 crore, while interest
cost rose 18.16% to Rs 36.93 crore and depreciation increased 14.60% to Rs
60.98 crore. PBT increased 216.59% to Rs 171.59 crore. Tax expenses for FY2021
was of Rs 45.17 crore compared to tax expense of Rs 15.68 crore in FY2020.
Minority interest for 9M FY22 was Rs 0.34 crore compared to negative Rs 0.22
crore in 9M FY21, Net profit rose 225.45% to Rs 126.07 crore.
The TTM EPS on post-issue equity works out to Rs 12.50. At
the upper price band of Rs 542, P/E works out to 43.20.
As of 25 April
2022, its listed peers such as Apollo Hospitals Enterprise trades at TTM P/E of
76.12, Fortis Healthcare trades at TTM P/E of 46.15, Narayana Hrudalaya trades
at TTM P/E of 41.86, Max Healthcare trades at TTM P/E of 71.94 and Krishna
Institute of Medical Sciences trades at TTM P/E of 34.87. For FY21, Rainbow Children’s Medicare OPM and
ROE stood at 25.05% and 8.96% respectively, compared to 10.77% and 3.26% for Apollo
Hospitals Enterprise, 10.04% and negative 1.79% for Fortis Healthcare, 7.05%
and negative 1.27%% for Narayana Hrudalaya , 16.12% and negative 2.43% for Max
Healthcare and 27.89% and 20.79% for Krishna Institute of Medical Sciences respectively.
Rainbow Children's
Medicare: Issue highlights
|
For Fresh Issue Offer size (in no of shares )
|
|
- On lower price band
|
5,426,356
|
- On upper price band
|
5,166,051
|
Offer size (in Rs crore)
|
280
|
For Offer for Sale Offer size (in Rs crore)
|
|
- On lower price band
|
1238.44
|
- On upper price band
|
1300.84
|
Offer size (in no of shares )
|
24,000,900
|
Price band (Rs)
|
516-542
|
Minimum Bid Lot (in no. of shares )
|
27
|
Post issue capital (Rs crore)
|
|
- On lower price band
|
101.76
|
- On upper price band
|
101.5
|
Post-issue promoter & Group shareholding
(%)
|
50.43
|
Issue open date
|
27/04/2022
|
Issue closed date
|
29/04/2022
|
Listing
|
BSE, NSE
|
Rating
|
44/100
|
Rainbow Children's Medicare:
Restated Consolidated Financials
|
|
1903
(12)
|
2003
(12)
|
2103
(12)
|
2012
(9)
|
2112
(9)
|
Sales
|
542.79
|
719.39
|
650.05
|
486.17
|
761.31
|
OPM (%)
|
27.36%
|
27.39%
|
25.05%
|
26.85%
|
33.72%
|
OP
|
148.51
|
197.03
|
162.83
|
130.54
|
256.74
|
Other inc.
|
8.35
|
10.35
|
10.26
|
8.12
|
12.75
|
PBIDT
|
156.86
|
207.38
|
173.09
|
138.66
|
269.49
|
Interest
|
39.02
|
44.61
|
44.06
|
31.25
|
36.93
|
PBDT
|
117.84
|
162.77
|
129.03
|
107.41
|
232.57
|
Dep.
|
60.32
|
69.41
|
73.34
|
53.21
|
60.98
|
PBT
|
57.52
|
93.36
|
55.69
|
54.20
|
171.59
|
Share of Profit/(Loss) from
Associates/JV
|
-
|
-
|
-
|
-
|
-
|
PBT before EO
|
57.52
|
93.36
|
55.69
|
54.20
|
171.59
|
Exceptional items
|
-
|
-
|
-
|
-
|
-
|
PBT after EO
|
57.52
|
93.36
|
55.69
|
54.20
|
171.59
|
Taxation
|
12.94
|
38.02
|
16.13
|
15.68
|
45.17
|
PAT
|
44.59
|
55.34
|
39.56
|
38.52
|
126.41
|
Minority Interest
|
-
|
(0.39)
|
(0.45)
|
(0.22)
|
0.34
|
Net Profit
|
44.59
|
55.73
|
40.01
|
38.74
|
126.07
|
EPS (Rs)*
|
4.4
|
5.5
|
3.9
|
#
|
#
|
* EPS is annualized on post issue
equity capital of Rs 101.5 crore of face value of Rs 10 each
|
|
|
# EPS is not annualised due to
seasonality of business
|
|
|
|
|
EO: Extraordinary items. EPS is
calculated after excluding EO and relevant tax
|
|
|
|
Figures in Rs crore
|
|
|
|
|
|
Source: Capitaline Corporate
Database
|
|
|
|
|
|
|