Rainbow Children's Medicare IPO: All You Need To Know
CDC Group-backed Rainbow Children's Medicare Ltd. will launch its three-day initial public offering on April 27
CDC Group-backed Rainbow Children's Medicare Ltd., a largely south-focused hospital chain, will launch its three-day initial public offering on April 27.
The company will issue new stock worth Rs 280 crore. The private equity investor, promoter and other shareholders will also sell 2.4 crore shares worth Rs 1,300.8 crore at the upper end of the price band of Rs 516-542 apiece.
Rainbow raised nearly Rs 30 crore in October at Rs 140 per share. The rights issue was fully subscribed by promoter Ramesh Kancharla after other shareholders renounced their share in his favour.
The IPO comes amidst global market volatility on account of Russia's war in Ukraine, and resurgence of Covid-19 in China.
Rainbow will offer 28.74% of the post-issue equity in the IPO. The promoters will hold 49.80% after the offer.
Issue Details
Issue opens on: April 27.
Issue closes on: April 29.
Price Band: Rs 516-542 apiece.
Issue size: Rs 1,580.8 crore including fresh issue of Rs 280 crore.
Face value: Rs 10 apiece.
Lot size: 27 equity shares and multiples.
Listing on: BSE and NSE.
Lead Managers: Kotak Investment Banking, JP Morgan and IIFL Securities.
Use Of Proceeds
The company plans to use Rs 40 crore to redeem non-convertible debentures issued to CDC Group.
It plans a capex of Rs 244 crore over the next three years. About Rs 170 crore of that will come from the IPO and the rest from internal accruals. Rainbow plans to setup six new hospitals—two each in Hyderabad and Bengaluru, one each in Chennai and the National Capital Region.
That will add close to 500 beds, taking the total capacity to 2,000 beds in the next three years.
Business
Rainbow is a multi-specialty pediatric and obstetrics and gynecology hospital chain operating 14 facilities and three clinics in six cities—Hyderabad, Bengaluru, Visakhapatnam, Vijayawada, Chennai and NCR.
It operates in a hub-and-spoke model in Hyderabad with the main facility having 250 beds, and four smaller hospitals of 25-50 beds each spread across the city. It plans to add two smaller hospitals in the next two years.
The company plans to replicate the model in Bengaluru, Chennai and the NCR.
Currently, over 60% of the revenue comes from Hyderabad. Core specialties are pediatrics, including newborn and pediatric intensive care, pediatric multi-specialty services, pediatric quaternary care (including multi organ transplants), and obstetrics and gynecology.
The company has one of the highest average revenue per operating bed amongst its peers at Rs 45,951 for nine months ended December. The average length of stay was 2.85 days during the period.
But occupancy levels have been lower compared to peers at 46.18%. The company attributes that to an annual addition of 100-150 beds in the last few years and absence of subsidies under the state or central government schemes since it offers specialised pediatric services. General superspecialty hospitals have commitments to take in subsidised patients, which account for 10-15% of the occupancy for a hospital.
The company expects to improve occupancy to 60-65% in the next two-three years as new spoke hospitals commence operations.
Financials
Rainbow's operating profit for nine months ended December rose 33.7% but the company expects growth to normalise to around 30%.
Total borrowings stood at Rs 40.69 crore as of December.
Peer Competition
While the company specialises in pediatrics, it can be compared with superspecialty hospital chains like Apollo Hospital Enterprise Ltd., Max Healthcare Institute Ltd., Fortis Healthcare Ltd., Narayana Hrudayalaya Ltd., and the Krishna Institute of Medical Sciences.
Risk Factors
The company is dependent on medical professionals and its business and financial results could be impacted if they are not able to attract and retain such talent.
It engages doctors primarily on a consultancy service contract basis and there is no assurance that the doctors will not prematurely terminate their agreements.
Revenue is highly dependent on its hospitals in Hyderabad and Bengaluru. It is also significantly dependent on certain specialties for a majority of its revenue.
The Covid-19 pandemic affected regular business and may continue to do so, depending on the severity and duration of the pandemic.
Its hub-and-spoke model of provision of healthcare services may not be successful.
If it fails to manage growth or implement growth strategies (which include expansion into new geographies), its business, financial condition and results of operations may suffer.
It operates in a regulated industry, and compliance with applicable safety, health, environmental, labour and other regulations, or failure to obtain or renew approvals, licences, registrations and permits, may adversely affect business, results of operations and cash flows.
It faces intense competition from other healthcare service providers.
If the company is unable to maintain bed occupancy rates at sufficient levels, it may not be able to generate adequate returns on capital investments.
Brokerage View
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