Preparing to enter into newer territories with domain expertise…
About the stock: Rainbow Children’s Medicare Limited (RCML) is a leading chain of paediatric multi-speciality and perinatal hospitals in India, operating 23 hospitals and 5 clinics in 9 cities, with a total bed capacity of 2,375 beds
• RCML registered blended ARPOB of ₹ 59,324 with occupancy at 46.6% and ALOS at 2.71 days for 9MFY26.
• Payor mix for 9MFY26: 51.9% from insurance and 48.2% from cash.
Investment Rationale:
• Q3FY26- better topline growth with mixed parameters- Revenues grew ~12% YoY to ₹445 crore, driven by 9% growth in ARPOB to ₹ 58362. On the other hand, there was a de-growth in occupancies to 47.19% (decline 601 bps YoY) on account of new bed capacity in Guwahati (acquired in September), Warangal and Rajahmundry. Deliveries grew 16% YoY. EBITDA grew ~9% YoY to ~₹ 147 crore and EBITDA margins de-grew by 76 bps to 33% due to incremental expenses pertaining to new hospitals.
• After three soft quarters in a row, this quarter has shown a better growth across parameters. This is on account of better OP volume and deliveries. Rainbow has maintained a strong EBITDA margins trajectory (+28%) over the last 13 quarters barring one or two exceptions. We expect margins to hold up despite higher initial fixed costs from the spoke hospitals in Bangalore and Rajahmundry as the ramp-up at Guwahati and Warangal hospitals is expected to provide cushion.
• Strong industry-positioning, better margin trajectory; forthcoming capex to maintain growth momentum- RCML’s expertise in the most case-sensitive healthcare cohort that is paediatric and perinatal care encompassing areas like neurology, nephrology, oncology and cardiology among others and its efficient synergy across paediatric services and perinatal services makes it a standout player among peers. The company has recently added beds in Bengaluru’s Electronic City (90 beds) and Hennur (60 beds) in expected to start shortly. Coimbatore (130 beds) project is under development while for Gurugram Sector 44 (325 beds) and Sector 56 (125 beds) hospitals, the excavation is in progress and are expected to be operational post FY28. It is also setting-up an asset-light greenfield built to suit hospital in Pune (150 beds) expected to be operational in FY29. The company is all set to add ~790 beds over the next 2-3 years to the existing bed count of 2375 beds. As the company embarks into a capex cycle, we will continue to monitor progress on the margins front.
Rating and Target price
• Our target price is ₹ 1650 based on 22x FY28E EBITDA of ₹ 735.6 crore.
