Buy Rainbow Children’s Medicare Ltd For the Target Rs. 1,685 by Choice Broking Ltd
Expansion & specialties to drive momentum: Strategic network expansion through the hub-and-spoke model, deeper penetration into new markets and a sharper focus on tertiary and quaternary care are set to strengthen the growth trajectory. Additionally, the ongoing scale-up of the IVF vertical is expected to further propel strong and sustainable long-term growth.
View and Valuation: We anticipate growth to be driven by strong momentum in IVF services, higher ARPOB and expansion into new geographies through organic and inorganic growth. We forecast Revenue/EBITDA/PAT to expand at a CAGR of 19.6%/22.0%/32.1% over FY25–FY28E. Valuing the stock at an EV/EBITDA multiple of 22x on the average of FY27 and FY28E, we maintain our target price of INR 1,685 and upgrade our rating to BUY (from ADD).
Revenue came in above estimate and saw strong QoQ growth on all fronts
* Revenue came in at INR 4.4 Bn (vs. CIE estimate: INR 4.3 Bn), up 6.5% YoY and 26% QoQ.
* ARPOB at INR 57,396, up 15.3% YoY, but down by 9.4% QoQ; occupancy dropped from 59.9% in Q2FY25 to 52%.
* EBITDA came in at INR 1.5 Bn (vs. CIE estimate: INR 1.4 Bn), up by 1.2% YoY and 43.7% QoQ. EBITDA margin came in at 33.5% (vs. CIE estimate of 33%), contracted by 176 bps YoY, but improved by 411 bps QoQ.
* PAT came in at INR 0.8 Bn (vs. CIE estimate: INR 0.8 Bn), down 4.3% YoY and up 40.6% QoQ, with a PAT margin of 17% (vs. 18.9% in Q2FY25).
Acquisitions integrated smoothly; poised for revenue acceleration
The Warangal and Guwahati acquisitions were fully integrated in this quarter, including supply chain consolidation and updated insurance empanelment. Initial softness in volumes was due to transitional issues, such as permitting, insurer approvals and alignment of clinical protocols. With all operational hurdles now cleared, we expect noticeable revenue uplift beginning in December 2025. Both hospitals will benefit from RAINBOW’s specialty framework, clinical depth and centralised operating model. Over the next few quarters, these assets are expected to scale up rapidly, contributing to consolidated growth and margin improvement as they move towards maturity and better case mix realisation.
Expansion pipeline creates multi-year runway; large hubs to unlock operating leverage: RAINBOW continued advancing its significant expansion program, commissioning the 100-bed Rajahmundry hospital and preparing to launch two new Bangalore units (Electronic City and Hennur). Major projects, including the 450-bed Gurugram hub, Chennai’s 60-bed facility and Coimbatore regional hub (130 beds) - remain on track. Having added 780 beds in two years, the company now enters a monetisation phase with strong balance sheet support. Management expects these new hospitals to drive 20%+ CAGR over the next 2–3 years, with typical 15–18-month breakeven timelines and substantial margin expansion as high-capacity hubs scale up.
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