Buy Rainbow Children's Medicare Ltd for the Target Rs 1,650 by Prabhudas Liladhar Ltd
Margins to improve
RAINBOW’s reported inline Q2FY27 EBITDA of INR 1.7bn with growth of 14% YoY. RAINBOW has been investing in focussed marketing and sales initiatives which also include new clinical hiring; benefits of that will be more visible in coming quarters. Company has added 50% bed capacities over the past two years, effectively concluding its current expansion cycle. Overall, we see profitability to improve from FY27 with ~19% EBITDA CAGR over FY26-29E vs 13% CAGR over FY24-26 as new capacities ramp up. Company enjoys higher margins, strong FCF generation with net cash B/S, and healthy return ratios because of the asset light hub-and-spoke model, it being the only integrated multi-specialty pediatric hospital chain in India offering comprehensive services, and its full-time doctor engagement model. Strategic expansion across its core markets in South India also augurs well for its sustainable growth. Our FY27E / FY28E EBITDA stands cut by 4-6%. Maintain ‘BUY’ rating with revised TP of INR 1,650/share valuing at 23x EV/EBITDA based on Pre-IND AS Sept 2028E EBITDA.
In line EBITDA; margins down YoY due to new bed addition: RAINBOW reported EBITDA of INR 1.7bn, up 14% YoY (26% QoQ); in line with our estimates. For H1, consol EBITDA came in at INR 3bn (up ~21% YoY), with OPM at 29.9%. Margin declined by ~245 bps YoY to 31%; due to newly operationalised 55 beds at Nellore and 40 beds at Guntur in Q2. Pre IND-AS EBITDA reported at INR 1.4bn, up 14% YoY. OPM of 26%; down ~220bps YoY but up ~300bps QoQ. Adj PAT increased 9% YoY to INR 821mn. PAT for H1 stood at INR 1.4bn, up ~11% YoY.
Healthy ARPOB; Occupancy declined YoY:
Revenue grew 23% YoY to INR 5.5bn; vs our est of INR 5.3bn. H1 revenues stood at INR 10.2bn, up ~28% YoY. ARPOB increased 11% YoY to INR 63.4k per day aided by reduction in ALOS to 2.64 days from 2.73 days in Q2FY26. Average occupancy decreased ~280bps YoY but increased by ~800 bps QoQ to 49.2%. In Q2, Rainbow operationalized 55 beds at Nellore and 40 beds at Guntur. Occupancy at mature units was flat YoY to 54.2%, while emerging units improved by 250bps YoY to 47.2%; new units reported occupancy of 27.4% (up ~480bps QoQ). IP volumes were up by 15% YoY; OP volumes improved 19% YoY while deliveries improved by 20% YoY.
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SEBI Registration number is INH000000933
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