Buy Rainbow Children's Medicare Ltd for the Target Rs.1,650 by Choice Institutional Equities Ltd
Strong growth through capacity expansion:
RAINBOW is well-positioned to deliver a sustained growth, with plans to expand its bed capacity, from +2,500 at present to over 5,000 beds, supported by an expansion pipeline of ~1,050 beds across multiple geographies. Alongside capacity addition, technology investments, clinical talent acquisition and the One Rainbow Model are anticipated to drive patient volumes, improve occupancy, enhance operational efficiencies and strengthen profitability.
Robust volume-led growth drives revenue; margin recovers sequentially
* Revenue grew 23.2% YoY / 16.6% QoQ to INR 5,480 Mn (vs. CIE estimate: INR 5,293 Mn), driven by growth in delivery volume.
* EBITDA grew 14.2% YoY / 26.2% QoQ to INR 1,700 Mn; margin contracted 245 bps YoY and improved 237 bps QoQ to 31% (vs. CIE estimate: 30.5%).
* Adj PAT increased 9.1% YoY / 35.5% QoQ to INR 821 Mn (vs. CIE estimate: INR 817 Mn); PAT margin stood at 15.0%.
Significant capacity expansion to drive long-term growth:
RAINBOW is wellpositioned to deliver sustained growth through its sizeable expansion pipeline of ~1,050 beds across various stages of development. The company is targeting expansion of its existing capacity of ~2,600 beds to 5,000+ beds over the next few years. Upcoming projects across Indore, Mumbai, Coimbatore, Gurugram, Pune and Bengaluru are anticipated to strengthen its pan-India presence. We believe that the focus on disciplined execution, with phased commissioning of projects to ensure efficient integration into the existing operating model. The company also anticipates new facilities to progressively scale up operations as patient volumes and occupancy level improve. Supported by its established brand and clinical capabilities, RAINBOW is well positioned to capitalise on its expansion opportunities and build a national healthcare platform.
Multiple growth drivers to strengthen business momentum: RAINBOW is focussed on leveraging multiple growth drivers, including onboarding of experienced clinical talent, improving patient conversions, strengthening community outreach and accelerating digital adoption. The implementation of the One Rainbow Model is projected to standardise clinical protocols, improve care delivery and support consistent clinical outcomes across hospitals. Management remains focussed on driving patient volumes, improving conversion rates, increasing capacity utilisation and accelerating the operational maturity of newer hospitals. With established hospitals continuing to deliver a healthy growth and newer facilities progressing towards operational breakeven, these initiatives are forecast to support sustainable revenue growth and strengthen profitability over the medium term.
View and Valuation: We maintain Revenue/EBITDA/APAT to expand at a CAGR of 20.6%/21.9%/26.9% over FY26–FY29E. Valuing the stock at an EV/EBITDA multiple of 20x (from 22x) on an avg. of FY28–29E, we maintain our target price of INR 1,650 and change our rating to BUY (from ADD), due to recent stock correction.
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