RAINBOW Stock Analysis September – 2024

September 16, 2024

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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.