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HomeMutual FundRainbow Children’s Medicare Limited IPO review: – myMoneySage Blog

Rainbow Children’s Medicare Limited IPO review: – myMoneySage Blog


Rainbow Children’s Medicare Limited incorporated on August 7, 1998, is a leading multi-specialty pediatric and obstetrics and gynecology hospital chain in India. The company’s specialties are pediatrics, which includes newborn and pediatric intensive care, pediatric multi-specialty services, pediatric quaternary care (including multi-organ transplants), and obstetrics and gynecology, which includes normal and complex obstetric care, multidisciplinary fetal care, perinatal genetic and fertility care.

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It operates 14 hospitals and 3 clinics in 6 cities, with a total bed capacity of 1,500 beds, as of September 30, 2021. Currently, 5 of their hospitals are accredited by NABH and 3 of their hospitals are certified by EDGE. The company had the highest number of hospital beds amongst comparable players in the maternity and pediatric health care delivery sector, as of March 31, 2021.

Promoters & Shareholding:

Dr. Ramesh Kancharla, Dr. Dinesh Kumar Chirla, and Dr. Adarsh Kancharla are the company promoters. 

Pre Issue Share Holding 62.19%
Post Issue Share Holding 49.83%

Public Issue Details:

Offer for sale: Fresh issue of approx. 5,166,051 equity shares of Rs. 10 aggregating up to Rs. 1300.85 Cr and OFS of approx. 24,000,900 equity shares aggregating up to Rs. 1300.85 Cr.

Total IPO Size: Rs. 1580.85 Cr.

Price band: Rs. 516 – Rs. 542.

Objective: For early redemption of NCDs issued by the Company in full and for capital expenditure on new hospitals and medical equipment.

Bid qty: minimum of 51 shares (1 lot) for Rs. 14,892 and maximum of 13 lots.

Offer period: 27th April 2022 – 29th Jan 2022.

Date of listing: 10th May 2022.

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Pros:

∙ Leading multi-specialty pediatric and obstetrics and gynecology hospital chain in India.

∙ Proven ability to attract, train and retain high-caliber medical professionals.

∙ Comprehensive perinatal care provider, with synergies between pediatric and obstetrics and gynecology services.

∙ The company has approached network expansion with financial prudence and has been disciplined when making financial decisions for capital investments.

∙ Professional and experienced management team.

Cons:

∙ Revenues are highly dependent on hospitals in Hyderabad and Bengaluru and any disruption in these regions can affect the company’s business.

∙ Engage doctors primarily on a consultancy service contract basis hence there is a risk of doctors prematurely terminating their agreements.

∙ Faces intense competition from other healthcare service providers.

∙ The objects of the Offer have not been appraised by any bank or financial institution.

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Subscribe or avoid?

Sectorial outlook – The total hospital market size in India in the financial year 2020 was expected to be approximately Rs. 4270 billion growing at a CAGR of 13% between the financial years 2016 and 2020. The Indian Healthcare delivery market is estimated to grow to Rs. 5 trillion in the financial year 2022 with the majority of growth being contributed by the low base and the pent-up demand from deferred treatments in the financial year 2021. With renewed impetus from PMJAY and government focus shifting onto the healthcare sector, the healthcare delivery market is expected to grow at 15-17% CAGR and reach Rs. 7.67 trillion in the financial year 2025. Growth in household incomes and, consequently, disposable incomes, are critical to the overall growth in demand for health care delivery services in India. The share of households falling in the income bracket above Rs. 0.2 million is expected to increase to 35% in the financial year 2022 from 23% in the financial year 2017 and this is expected to have a positive impact on the hospital sector.

The financials (revenue and net profit) are shown in the graph below:

Valuation – For the last 3 years average EPS is Rs. 4.89 and the P/E is around 110x on the upper price band of Rs. 542. The EPS for FY21 is Rs. 4.25 and the P/E is around 127x and if we annualize FY22 earnings then the asking price is at a P/E of 31x. Apollo Hospitals (P/E 76.6), Fortis Healthcare (P/E 57), Narayana Hrudayalaya (P/E 41.9), Max Healthcare (P/E 148), and Krishna Institute (P/E 34.9) are the listed peers as per the RHP. The company P/E is between 31x and 127x.

Recommendation – It is a leading multi-specialty pediatric and obstetrics and gynecology hospital chain in India and has generated strong revenue growth in the last 3 years and 9 months though the fluctuating margins are a bit of concern. After considering all the factors we would recommend investors to “Subscribe” to this IPO from a medium to long term perspective.

Disclaimer:

This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in

Also read : Private Equity investment and its taxation

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