Rainbow Children's Medicare IPO in progress: Should you subscribe to the issue?

The initial public offer (IPO) of Rainbow Children's Medicare opened today. The multi-specialty hospital chain plans to raise over Rs 1,581 crore from the primary market.The firm has already raised Rs 469.55 crore from 36 anchor investors ahead of the IPO. In a filing to the BSE, Rainbow Children's Medicare said it had finalised the allocation of 86.63 lakh shares to anchor investors at a price of Rs 542 apiece after consulting its book-running lead managers.

The issue will close on April 29. Shares are available in a price band of Rs 516 to Rs 542.

The IPO includes a fresh issue of Rs 280 crore and an offer for sale (OFS) of Rs 1,301 crore. Kotak Mahindra Capital Company Limited, JP Morgan India and IIFL Securities are the book running lead managers to the issue.

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The allotment of shares will be done on May 5, 2022. Lot size of the IPO is 27 shares for which one will have to spend Rs 14,634. A retail individual investor can apply for up to 13 lots or 351 shares by spending Rs 1,90,242.

The stock is likely to be listed on BSE and NSE on May 10.  

Employees will get a discount of Rs 20 per share. Stake of promoters, which currently stands at 62.19 per cent, will be reduced to 49.83 percent after the IPO.

The company proposes to utilise the net proceeds from the fresh Issue towards funding the early redemption of NCDs issued by the company in full and capital expenditure towards setting up of new hospitals and purchase of medical equipment for such new hospital and general corporate purposes.

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Here's a look at what analysts and brokerages said on the prospects of the IPO.

Yash Gupta, Equity Research Analyst, Angel One said," If we look at the valuations of the IPO, based on 9MFY22 numbers, the IPO is priced at a Price to Earnings 30.4 times and EV/EBITDA of 13.8 times at the upper price band of the IPO, which is in line with a listed peer group. The company's revenue and return ratios have improved significantly in 9MFY22. We don't expect the company can maintain this growth in the near future. Given the expensive valuation, we suggest retail investors not apply for Rainbow Children's Medicare IPO. We have a 'NEUTRAL' recommendation for the IPO."

Geojit Financial has given a subscribe rating to the IPO.

"At the upper price band of Rs 542, the firm is priced at 32.6 times (FY22E annualized) which appears to be reasonably priced compared to its peers. Hence, we assign a 'Subscribe' rating for the issue on a short to medium term basis, considering its strong financial performance both top-line and bottom-line, improving margins, focus on child-care services and growing preference for specialty maternity hospitals," the financial services firm said.

Anand Rathi has assigned a subscribe rating to the share sale.

"The company has the ability to conceptualise, create and operate specialized children's hospitals. At the upper end of the IPO price band, the company is offered at 32.6x its FY22 annualized earnings, with a market cap of Rs 55,013 million, which we believe is quite reasonable then its other listed peers. The company has a robust track record of performance and has been generating positive cash flow. We are positive on the long-term prospects of the company. Hence, we recommend a 'Subscribe-Long Term' rating to this IPO," the brokerage said.

Marwadi Financial Services is positive on the prospects of the IPO.

"Considering the trailing twelve months (TTM) (Dec 21) earnings per share of Rs 12.56 on a post issue basis, the company is going to list at a P/E of 43.16x with a market cap of Rs 55,013 million whereas its peers namely Apollo Hospital Enterprise Ltd and Fortis Healthcare Ltd are trading at PE of 77.3x and 56.9x respectively. We assign 'Subscribe' rating to this IPO as the company is a leading pediatric multi-specialty healthcare chain with strong clinical expertise in managing complex diseases. Also, it is available at reasonable valuation as compared to its peers."