Add Rainbow Children's MedicareLtd for the Target Rs 1,550 by Emkay Global Financial Services Ltd
Rainbow Children's Medicare delivered a strong 1QFY27, with revenue growing 33% yoy and beating our/street’s estimates by 9%/8%. Growth was broad-based across mature and new clusters, on the back of better case mix, bed additions, and superior execution. Despite increased competitive intensity, the company expects newly commissioned Bengaluru units to achieve breakeven within 12-18 months— underpinning strong brand equity. The management expects revenue to double over the next four years (CAGR of 20%), on the back of planned bed capacities across existing and new clusters (~50% of 1QFY27 capacity), with plans to reach 5k beds by FY32. In line with this, we bake in revenue CAGR of 19% over FY26-29E. However, the initial drag from new projects is likely to weigh on profitability, especially in FY29, in our view. Factoring in the acquisitions and 1Q beat, we raise our FY27/FY28 revenue estimates by 5%/6%. We retain ADD and Jun-27E TP of Rs1,550, based on 26x Jun-28E pre-IndAS EV/EBITDA.
Strong quarter led by increased capacity and improved occupancy
Rainbow reported topline growth of 33% yoy (Rs4.7bn) in 1Q, led by OBD/ARPOB growth of 26%/6% yoy (organic growth of 22-24% yoy). IP volumes grew 28% yoy, while OP volumes grew 25% yoy – primarily due to improved occupancy (~+100bps yoy) and increase in bed capacity (+26% yoy). Pre-IndAS EBITDA grew 33% yoy to Rs1.1bn (+9%/5% vs our/street estimates), while margin was stable yoy, at 23.0%. At mature facilities, revenue grew 16% yoy, with ARPOB/OBD growing 10%/6% yoy; occupancy improved yoy to 45%. At new facilities, revenue more than doubled yoy (+127%), primarily driven by growth in OBD on the back of an increase in operational bed adds. PAT was up 13% yoy to Rs606mn. The payor mix for 1Q stood at 47.5%/52.5% for cash/insurance patients, respectively. 1Q capex was Rs563mn, with net cash of Rs6.1bn as of Jun-26
Outlook and risks
The management highlighted a well-defined expansion roadmap for the medium-to-long term (with no delay in execution of planned project pipeline), as it plans to double its capacity in the next five years. The management has guided for ~20% revenue growth for the medium term, underpinned by improving occupancies at mature hospitals and robust expansion pipeline. It has also guided EBITDA margins (pre-IndAS) at 24-25%. Rainbow’s leadership position in the pediatric market is further strengthened by its foray into high-growth non-core markets (North and West India), which should aid revenue trajectory over the long-term. The company's efforts to reduce seasonal dependency, invest in CRM and hospital information systems to sharpen lead conversion, and instill unit-level accountability are intended to support faster ramp-up of new units and sustain profitable growth without compromising clinical quality. A strong balance sheet (net cash: ~Rs6.1bn) and robust cash conversion (OCF/EBITDA: 94%) should be able to sustain the outlined organic expansion plan (Rs22bn), in our view. Key risks: increased competitive intensity, project execution delays, and execution risks in newer markets
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
