Rainbow Children's Medicare IPO hits the Street — why analysts are gung-ho about it

Rainbow Children's Medicare - a multi-speciality pediatric, obstetrics and gynaecology hospital chain - launched an initial public offering (IPO) worth up to Rs 1,580 crore on Wednesday.

The initial share sale is a combination of fresh issuance of equity worth up to Rs 280 crore and an offer for sale (OFS) worth up to Rs 1,300.9 crore by promoters and existing shareholders.

By 11 am, the Rainbow Children's Medicare IPO saw bids for 23.4 lakh shares so far as against the total 2.1 crore shares on offer, a subscription of 11.4 percent, according to exchange data.

Here are important details to know about the Rainbow Children's Medicare IPO:

Potential investors can bid for Rainbow Children's shares in a price range of Rs 516-542 apiece.

Bids can be placed in multiples of 27 shares. At the upper end of the price band, one lot of shares is worth Rs 14,634.

The subscription window for the Rainbow Children's share sale opened on April 27 and will close on April 29.

Shares are likely to be listed on bourses BSE and NSE on May 10.

The company aims to utilise the funds out of fresh issuance towards early redemption of NCDs, as capex towards setting up of new hospitals and purchase of medical equipment and for general corporate purposes.

Rainbow Children's Medicare Chairman and Managing Director Ramesh Kancharla told CNBC-TV18 the company is looking to expand to 500 beds in next three years.

"Around Rs 70 crore are going to go for expansions and the remaining cash for general corporate purposes. We have Rs 200 crore of cash on the balance sheet. We have enough cash for the expansion of 500 beds in the next three year’s time," he said.

Rainbow Children's Medicare began its first pediatric speciality hospital in 1999, in Hyderabad. Its core specialities are paediatrics, pediatric multi-speciality services, pediatric quaternary care, obstetrics and gynaecology, multi-disciplinary fetal care, and perinatal genetic and fertility care.

"Historically we've been growing 20 percent. For us about 25 percent of EBITDA is kind of sustainable... We have a pretty superior case mix," said Kancharla.

Brokerages ICICI Direct, Ashika Research and Marwadi Financial Services recommend subscribing to the issue.

ICICI Direct is of the view that the company has a unique model and a decent valuation."Rainbow Children’s Medicare has a focused children-centric approach. The target market is expected to grow at a CAGR of 14 percent till FY26. However, key for Rainbow would be sustained current growth trajectory amid increased consolidation in the healthcare space, and the margin profile," the brokerage said in a research report.

At the upper end of the price band, the issue is valued at around 36.4 times its EV/EBITDA for the year ended March 2021 and around 22.9 times its EV/EBITDA for the first nine months of the year ended March 2022, according to ICICI Direct.