Rainbow Children's Medicare Limited - IPO Note

Hospital & Healthcare Services

Rainbow Children's Medicare Limited - IPO Note

Hospital & Healthcare Services

Price range
Rs. 516 – 542
Issue Period:
Apr 27, 2022
Apr 29, 2022
April 27, 2022

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 1,581 cr.
Public Issue
2.917 cr. shares
Market cap post IPO
5,251 – 5,501 cr.
Equity Pre - IPO
9.63 cr.
Equity Post - IPO
10.15 cr.
Issue type
Fresh Issue and OFS

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research

Key Strengths and Strategies

Leading Paediatric Multi-Specialty Healthcare Chain with Clinical Expertise in Managing Complex Diseases
RCML is one of India's major multi-specialty paediatric care providers, including branches in neurology, nephrology, gastrointestinal, oncology, and cardiology. It has set aside 1/3rd of all operating beds in all hospitals for critical care. In addition, advanced newborn and paediatric intensive care facilities have been established across hospitals. At hub hospitals, it provides complicated multi-specialty tertiary intensive care. The company is a stand-alone paediatrics multi-specialty hospital chain and one of the few paediatric-focused hospital companies in south India.

The company thinks that its position as a leader in paediatrics, particularly in relation to complicated disorders, gives it a competitive edge. The paediatric healthcare market in India is predicted to increase at a CAGR of 13% between FY21 and FY26, according to CRISIL, and the company feels it is well-positioned to benefit from this growth.

Hub-and-Spoke Model Provides Synergies
The company has adopted a hub-and-spoke model in Hyderabad, with its Banjara Hills hospital (250 beds) functioning as the hub and four spokes at Secunderabad, LB Nagar, Kondapur, and Hydernagar. It offers outpatient and inpatient care at the hub hospital, with a focus on tertiary and quaternary care, and secondary care in paediatrics, obstetrics, and gynaecology, as well as emergency services, at the spokes.

Under this structure, the doctors at the hub hospital can reach out to a broader population and service a larger catchment region. Over the last two decades, this model has allowed the organisation to grow from a single secondary care hospital in Hyderabad to six hospitals and become a well-known supplier of tertiary and quaternary care services at hub hospitals.

In Bengaluru, a similar hub-and-spoke model is being adopted. More complex referrals are coming in to its Bengaluru hub from spokes on Bannerghatta Road and Hebbal. In and around Bengaluru, it plans to expand its spoke network. It plans to expand capacity by adding spokes to both locations. It also aims to establish spokes in Chennai, Tamil Nadu, and New Delhi-NCR, where it already has hub hospitals. According to the company, the hub and spoke strategy will enable it to provide comprehensive and accessible paediatric and perinatal services in these cities.

Strong Track Record of Growth, Operational, and Financial Performance
RCML has grown its footprint from two to six cities in the previous six years, adding 985 beds across ten hospitals. It has adopted a cost-effective growth approach that has been financially disciplined. It may attempt to expand its hospital network in the future, depending on the location of the facility and the project's completion dates, by acquiring brownfield assets or developing greenfield assets.

RCML has a good financial track record across its hospital network. Every new region it enters, its first hospital, which is a hub, often incurs cash losses for the first few years, according to experience. As a result, compared to the hub hospital, every new spoke hospital in the city is able to achieve operational break-even very quickly. It has been able to maintain profitability due to the growth seen in existing projects, as well as a policy of phasing out new initiatives.

Strengthen Tertiary and Quaternary Paediatric Services in Existing Hospitals
The company sees a lot of potential in expanding its quaternary care activities. In 2019, it began providing paediatric quaternary care services at its Banjara Hills centre in Hyderabad. Similar capabilities will be built in hospitals in Bengaluru, Chennai, and New Delhi-National Capital Region. Rainbow Children's Heart Institute is also a 110-bed stand-alone paediatric cardiac centre, and the company wants to build similar cardiac capabilities in Bengaluru, Chennai, and NCR by engaging reputable, experienced, and competent cardiac experts in these locations. It also intends to invest in specialist medical infrastructure, like as cath laboratories, paediatric cardiac OT, and echocardiography machines, in order to improve its ability to treat cardiac patients.

Initiatives to Drive Performance Efficiencies
The company will look into ways to improve performance efficiencies in order to lower the cost of healthcare delivery, making it more affordable for patients while also contributing to increased profitability. In this regard, it aims to simplify procurement processes by focusing on: A) centralised and standardised procurement of medical equipment, consumables, and pharmaceuticals; B) leveraging the scale of operations for more cost-effective sourcing; and C) leveraging technology to gain real-time visibility, assess supplier performance, and access other relevant data. It also intends to cut the length of hospital stays even more as surgical work shifts to minimally invasive procedures, which the business believes will have a positive influence on key operational metrics.


Intense Competition – In India, the healthcare industry is fiercely competitive. Many public hospitals, private hospitals, clinics, and private practitioners compete in the same geographic areas. The company's business could suffer if it is unable to compete effectively.

Dependence on Medical Professionals – It is highly dependent on healthcare professionals, including doctors, and the business and financials could get impacted if RCML is not able to attract and retain such healthcare professionals.

Dependence of a Few Hospitals: Hospitals in Hyderabad and Bengaluru account for a large portion of the revenue. It is similarly reliant on a small number of specialisations for the majority of its revenue. Any reduction in revenue from these hospitals or specialisations could have a significant impact on the company.

Covid-19 Pandemic: The Covid-19 pandemic has had an impact on its usual business operations, and it may continue to do so depending on the severity and duration of the pandemic, if there is one.

Company Description

Rainbow Children's Medicare Limited (RCML) was established in August 1998 and is one of India's biggest multi-specialty paediatric, obstetrics, and gynaecology hospital chains, with 14 hospitals and three clinics in six cities with a total bed capacity of 1,500 beds as of September 2021. Paediatrics, which includes new born and paediatric intensive care, paediatric multi-specialty services, and paediatric quaternary care (including multi organ transplants); and obstetrics and gynaecology, which includes normal and complex obstetric care, multi-disciplinary fatal care, and perinatal genetic and fertility care, are the hospital chain's core specialties.

RCML had the most hospital beds among comparable competitors in the maternity and paediatric healthcare delivery industry as of March 2021. They have 641 full-time doctors and 1,947 visiting doctors as of December 2021. It has implemented a doctor engagement approach across hospitals, resulting in a high level of full-time doctor retention (at 81% for the period from April, 2019 to March, 2021).

In Hyderabad, RCML uses a hub-and-spoke concept, with Banjara Hills hospital (250 beds) serving as the hub and four spokes located throughout the city. This concept has enhanced its market position in and around Hyderabad by generating synergies through referrals to the hub for tertiary and quaternary care from the spokes. Currently, NABH has accredited 5 of the hospitals, and EDGE has certified 3 of them. Through a digital ecosystem, it has also expanded its reach to patients. It conducted 125,000+ outpatient video consultations with its video consultation platform between April 2020 and March 2021.


The healthcare industry in India has a huge headroom for the growth and players in the industry are expanding the bed capacities to cater the demand. RCML, following the industry trends and demand will add six hospitals in next three years with the bed capacity of ~530 beds. The premises for the proposed hospitals is expected to be taken on lease or sub-lease which will help reduce the cost of building the hospitals and won’t impact the returns. RCML has a presence in the maternity and paediatric healthcare market in India and there is a growing preference for speciality maternity hospitals. The private maternity care market is expected to grow at CAGR of 11-12% between FY21-FY26 to Rs. 26,100 crores. On an annualised FY22E earnings, the issue seems to be fairly priced at 32.5x PE (post-issue shareholding), compared to other listed players. We advise to Subscribe the Issue.

Financial Highlights

Particulars (Rs. in Crores) FY19 FY20 FY21 9MFY22
Revenue from Operations 542.79 719.39 650.05 761.31
EBITDA 156.87 207.37 173.10 269.49
EBITDA % 28.90% 28.83% 26.63% 35.40%
Profit Before Tax 57.53 93.36 55.70 171.59
Net Profit 44.59 55.34 39.57 126.41
PAT % 8.21% 7.69% 6.09% 16.60%
Basic EPS 4.83 5.98 4.36 13.39
Diluted EPS 4.74 5.92 4.25 13.12
RoNW (%) 12.01% 13.68% 8.88% 21.45%

Peer Comparison

Hospital Chain No. of Hosps. No. of Beds ARPOB ALOS Revenue CAGR (FY19-21) RoNW (%) EPS (FY22E) PE (x)
Rainbow Children’s Medicare 14.0 1,475.0 40.9 2.6 9.4% 8.9% 16.7 33
Apollo Hospitals 71.0 10,209.0 40.2 4.2 4.8% 3.3% 63.6 74
Fortis Healthcare 26.0 5,310.0 43.3 3.6 -5.1% -0.8% 4.6 59
Max Healthcare 16.0 3,400.0 50.1 5.2 -0.8% 2.5% 9.3 45
Narayana Hrudayalaya 21.0 6,725.0 28.5 4.6 -4.8% -1.5% 17.2 41
KIMS 9.0 3,064.0 20.6 5.5 20.3% 23.7% 41.4 33

Key Information

Use of Proceeds:
The total issue size is Rs. 1,581 crores, which is Fresh issue (17.7%) and Offer for Sale (82.3%). From the net proceeds, the company is expected to use 1) Rs. 40 crores in early redemption of NCDs issued by the company, in full; 2) Capital expenditure towards setting up of new hospitals and purchase of medical equipment for such new hospitals; and 3) General Corporate Purposes.

Book running lead managers:
Kotak Mahindra Capital Company Limited, J.P. Morgan India Private Limited, and IIFL Securities Limited.

Dr. Ramesh Kancharla (Promoter, Chairman and Managing Director), Dr. Dinesh Kumar Chirla (Promoter and Whole-time Director), Dr. Rohit Manipal Bhojaraj (Group COO), Dr. Prashanth Katragadda (Vice President – Medical and Operations), Mahesh Madduri (Head of Strategy), and R. Gowrisankar (Chief Financial Officer).