Rainbow Children’s Medicare IPO to open tomorrow; check GMP, brokerages view here

The initial public offering (IPO) by Rainbow Children’s Medicare (RCML) will open for subscription on Wednesday to garner over Rs 1,581 crore from the primary market. RCML is a leading multi-speciality paediatric and obstetrics and gynaecology hospital chain in India, operating 14 hospitals and three clinics in six cities, with a total bed capacity of 1,500 beds, as of December 31, 2021.  

The company has fixed a price band of Rs 516-Rs 542 per share. Investors can bid for a minimum of 27 shares (lot size) and in multiples thereafter. The company has offered a discount of Rs 20 to eligible employees applying under the employee reservation portion. The issue, which will close on April 29, includes a fresh issue of Rs 280 crore and an offer for sale (OFS) of Rs 1,301 crore.

Analysts hold a mixed view on the IPO. Santosh Meena, head of research, Swastika Investmart said, “The profitability for 9 months ended December 31, 2021 increased substantially to Rs 126.41 crore from Rs 38.53 crore in the same period a year ago. There might be a possibility that this sudden spurt in profitability was due to robust hospitalization in the second wave of Covid in Q1FY22. Thus, we believe that this exponential rise in profit might not continue in the future.”

RCML has expanded its hospital network and increased its bed capacity from 1,162 beds as of March 31, 2019 to 1,500 beds as of December 31, 2021. Over the same period, it increased the number of hospitals from 10 to 14. It has approached its network expansion with financial prudence and has been disciplined when making financial decisions for capital investments.

Meena further added that the specialised nature of the business, experienced management team, proven ability to attract, train and retain high-calibre medical professionals, under penetration of hospitals in India, make this issue good for long-term investors.

Shares of the company traded at a premium of Rs 50 in the unlisted market on April 26.  

The net proceeds from the fresh issue will be utilised towards the early redemption of non-convertible debentures (NCDs) issued by the company, along with capital expenditure towards setting up new hospitals and the purchase of equipment.

Yash Gupta, equity research analyst, Angel One added that based on 9MFY22 numbers, the IPO is priced at a price to earnings (PE) of 30.4 times and EV/EBITDA of 13.8 times at the upper price band, which is in line with the listed peer group.  

“Company’s revenue and return ratios have improved significantly in 9MFY22, but we don’t expect the company can maintain this growth in the near future. Given the expensive valuation, we are assigning a Neutral recommendation to the Rainbow Children’s Medicare IPO,” Gupta added.