Rainbow Children’s Medicare Ltd IPO Details

Rainbow Children’s Medicare Ltd operates a niche multi-specialty hospital chain focussing on paediatric, gynaecology and obstetrics care. Their broad areas of focus include new born intensive care, paediatric intensive care, multi-specialty services for paediatric patients, quaternary care for children, complex obstetrics care and foetal and pre-natal care.

Rainbow Children’s Medicareoperates a total of 14 hospitals and 3 clinics spread across 6 Indian cities. The hospital started its first hospital in Hyderabad in 1999 and since then growth in the niche space has been rapid. The hospital also has a panel of 602 full-time and 1686 visiting doctors available for consultation and care on a 24X7 basis.

Rainbow Children’s Medicare – Terms and conditions of the IPO

The IPO of Rainbow Children’s Medicare is a combination of a fresh issue of shares and an offer for sale. Here are the details of the issue.

  • The fresh issue portion will comprise of the issue of 54,37,984 (54.38 lakh) shares, which at the upper end of the price band of Rs.542 per share, will make the fresh issue portion worth a total of Rs.294.74 crore.

  • The offer for sale (OFS) portion will comprise of the issue of 2,40,00,900 (2.40crore) shares, which at the upper end of the price band of Rs.542 per share, will make the offer for sale (OFS) portion worth a total of Rs.1,300.85 crore.

  • The total size of the IPO (combining the fresh issue and the OFS) will comprise of the issue of 2,94,38,884 (2.94 crore) shares, which at the upper end of the price band of Rs.542 per share, will make the total issue worth Rs.1,595.59 crore.

  • In the OFS, the promoters (Ramesh Kancharla, Dinesh Kancharla and Adarsh Kancharla) will jointly sell 87.26 lakh shares. Private Equity investor, British International Investment PLC (formerly CDC Group) will offload 1.46 crore shares in the OFS.

  • Post the OFS, the promoters viz. Kancharla family, will see their overall stake come down from 62.19% to 49.83%. Post-IPO, public holding will increase from37.81% to50.17%.With PE fund held shares also shifting to the public, float will go up substantially.

Investment brackets for Retail Investors in Rainbow Children’s Medicare

Here is the range of investments permitted for retail investors in the Rainbow Children’s Medicare IPO. The investor lot is 27 shares and in multiples of lots of 27 shares each subject to the upper limit set out in the table below.

Retail investors have a total of 13 different lot options they can invest in. At the bare minimum, they can buy 1 lot of 27 shares entailing an application amount of Rs.14,634. At the upper end, they can put a maximum application for 13 lots comprising of 351 shares worth Rs.190,242.

Rainbow Children’s Medicare – Financial Highlights of the company

At the outset, the year FY21 is not exactly comparable since operations were largely disrupted due to the pandemic related lockdowns. Hence, the 9-months data for the period ended Dec-21 is more illustrative. With most of the upfront costs and capital investments getting absorbed, the company has shown a much better performance in the nine months to Dec-21. For the nine months, Rainbow reported EBITDA margins of 35.40%. Even net profits margins for the nine-month period was much higher at 16.6%. If you look at net profits for the 9 months period, net profits are higher by 228% on a yoy basis.

How investors should approach the Rainbow Children’s Medicare IPO?

Here are the factors to consider before investing in the Rainbow Children’s Medicare IPO.

  1. Rainbow Children’s Medicarecaters to a very niche market of paediatric care, gynaecology care and obstetrics care. This is a fast growing area, where margins are also relatively higher. The other advantage is that most of the capex has been absorbed and hence profit growth is expected to be rapid from current levels.

  2. The fresh issue portion will be used for repayment of NCDs and for CAPEX and purchase of medical equipment. This is considered to be value accretive to the company and should help post listing valuations.

  3. Now for valuation. At a post-issue market cap of Rs.5,501 crore, it gives a P/E ratio of a very reasonable 32.64X on annualized FY22 earnings. However, if you consider the growth of 20-25% sustaining, then FY23 earnings are discounted at 25X forward, which does look reasonable.

Rainbow Children’s Medicare offers a good niche and profitable high growth in the healthcare space. Investors with a relatively higher risk appetite can look at the stock for medium to long term value creation.

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