Amongst the push of IPOs final yr, Rainbow Children’s Medicare has been a average success from a returns perspective. Since the IPO, the corporate has reported 12/16 per cent progress year-on-year in income/PAT in 9MFY23, owing to elevated mattress rely, improved realisations and occupancy. The inventory returned 31 per cent from higher band of its IPO value.
We at bl.portfolio had advisable subscribing to the difficulty on the IPO and reiterate the advice now with an accumulate score on the inventory. The inventory, which continues to commerce at 31 occasions one-year ahead valuations, just like on the time of IPO, can achieve from maturing hospital profile, differentiated mannequin in healthcare and enlargement of its confirmed hub-and-spoke mannequin. The healthcare section, with tailwinds from rising buying energy and defensive nature, might be valued within the present surroundings and Rainbow’s inventory providing — a particular area of interest inside healthcare section — ought to outperform the broader markets.
Differentiated providing
Rainbow is a multi-speciality hospital however for youngsters and has prolonged into Obstetrics (being pregnant) and Gynaecology, primarily to supply care continuum in childcare. As a outcome, Rainbow is positioned between – boutique hospitals targeted on obstetrics and adult-multispeciality hospitals. The Hyderabad-based hospital is well-established within the area and has finetuned its hub-and-spoke mannequin.
It has entered Bengaluru, Chennai and NCR areas with the identical mannequin and is reporting a robust traction as nicely. The firm, with a large presence throughout the nation, can give attention to organically bettering its regional presence with its hub-and-spoke mannequin.
The hubs deal with procedures greater up the order, together with quarternary and tertiary care, and the spokes conduct major and secondary care procedures. Within the bigger under-penetration of common healthcare within the nation, pediatric multispecialty healthcare is additional missing. This has allowed Rainbow to succeed in for city centres resembling Bengaluru, Chennai and NCR areas to increase and achieve robust traction in these areas. Rainbow has a robust coaching programme and physician retention within the a number of paediatric disciplines which in any other case is usually a problem.
Growth drivers
Hospital income progress is pushed by quantity (mattress rely and occupancy) and pricing (ARPOB – common income per working mattress). Being a latest entrant in areas outdoors of Hyderabad, Rainbow can maintain quantity progress, and owing to under-penetration of high quality healthcare to quickly rising middleclass, pricing progress is frequent within the business.
Rainbow can count on to maintain 10-12 per cent income progress per yr by way of mattress rely addition itself, however the execution could also be lumpy from yr to yr. The firm has added 55 beds to extend its tally to 1,555 in 9MFY23 by commercialising its first spoke hospital in Chennai at OMR to the hub at Guindy. Another spoke in Financial district, Hyderabad, ought to add a further 90 beds by Q4FY23, rising the tally by 140-150 within the fiscal.
The firm equally plans so as to add 150-200 beds per yr in FY24 as nicely and, additional yearly to succeed in 1,000 extra beds. Another 80-bed spoke hospital at Anna Nagar, Chennai, and 60-bed hospital in central Hyderabad may be anticipated in FY24. Also, current facility in Hyder Nagar, Hyderabad, will improve mattress rely by 50 in FY24. Bengaluru (60 beds) and Rajahmundry, Andhra Pradesh (100 beds), would be the subsequent part of enlargement with land and permissions in place, to be commercialised in 18-24 months.
Pricing progress may be anticipated within the 6-8 per cent vary for hospitals. Rainbow additionally has concluded the latest spherical of value hikes in the identical vary by way of insurance coverage negotiations, that are the most important payors for Rainbow.
But past quantity addition and value progress, Rainbow, with a better proportion of just lately commercialised services, can count on a sustained enchancment in occupancy ranges, which may shoulder the income progress for an extended interval.
The mature cluster at rainbow (greater than 5 years of operations and 78 per cent of Q3FY23 revenues) has reported occupancy of 63 per cent in comparison with new services’ 42 per cent. Rainbow’s Hyderabad facility, with 20 years of operations, stories occupancy ranges of 72-74 per cent which, over time, most services can moderately count on to realize. In the general portfolio of 1,700-1,800 operational beds anticipated at Rainbow by FY24-25, the combination might be cut up between mature and new services; new hospitals (500 capability beds at the moment), anticipated to be commissioned in FY23 (150 beds), in FY24 (150-200 beds) other than enlargement in current services. As the brand new services with established hubs in Chennai, Bengaluru and Delhi scale up on occupancy, income progress ought to be sustained.
Financials and valuation
Consensus estimates 17 per cent income CAGR in FY22-24 (Bloomberg) over the ₹963 crore income reported in FY22. As occupancy, and therefore profitability, of latest services improves the consensus estimates a better progress in EPS for a similar interval at 28 per cent. The firm can finance the enlargement plans internally. The firm valuations are akin to friends, with Rainbow buying and selling at 31 occasions FY24 earnings, in comparison with 50/28/26 for Apollo Hospitals, Krishna Institute and Narayana Hryudayalaya.
