Rainbow Children's Medicare rallies 9%, hits new high on strong Q2 results

Centrum Broking increase its EPS estimates for FY25/FY26/FY27E by 9 per cent/6 per cent/12 per cent factoring maturity profile of beds improving leading to enhanced operating performance.

Rainbow Children's Medicare share price: Shares of Rainbow Children’s Medicare (Rainbow) hit a new high of Rs 1,685, as they rallied 9 per cent on the BSE in Monday’s intra-day trade amid heavy volumes in otherwise a weak market. 

 

In six trading days, the stock surged 24 per cent after posting strong operational and financial performance in the second quarter-ended September 2024 (Q2FY25). 

 

At 02:08 PM, the Rainbow stock was trading 6 per cent higher at Rs 1,636 on the BSE. In comparison, the BSE Sensex was down 1.5 per cent at 78,516 levels. In one year, the scrip appreciated 60 per cent, as compared to a 21 per cent rise in the benchmark index.

 

 

In Q2FY25, Rainbow witnessed growth across all key operating metrics, including the newly opened hospitals in Hyderabad, Bengaluru, and Chennai. As a result, the company achieved its highest-ever revenue, earnings before interest, taxes, depreciation, and amortisation (Ebitda), and profit after tax (PAT) in the quarter under review.

 

The company’s PAT jumped 25.1 per cent year-on-year (Y-o-Y) and 98.9 per cent quarter-on-quarter (Q-o-Q) at Rs 79.01 crore. Meanwhile, Ebitda margin improved 685 basis points (bps) Q-o-Q, down 11 bps Y-o-Y at 35.2 per cent. Revenue grew 26 per cent Y-o-Y and Q-o-Q at Rs 417.46 crore.

 

Historically, the second quarter experiences higher occupancy rates and increased patient footfalls, and this trend continued in this quarter. The management said the company continues to maintain a robust balance sheet with cash, cash equivalents, fixed deposits (FDs), and mutual fund investments totaling Rs 581.4 crore as of September 30, 2024. 

 

These funds will support the company’s ongoing capital expenditure plans. With current cash and anticipated internal accruals in coming quarters, the management said the company is well-positioned to complete all planned capital expenditures using internal resources and balance IPO funds.

 

Rainbow currently has more than 2,000 beds, including the managed beds, with a right mix of matured and new beds. The company’s focus remains to drive occupancies and optimise operations across the group along with customer delight. The management is confident in the company’s ability to maintain the growth momentum in the upcoming quarters.

 

Over the next 24 months, Rainbow plans to add 380 beds to its network. Of 380 beds, 100 beds will be in Rajahmundry which is planned to start by March 2025. Apart from this, two other hospitals are also coming up in Bengaluru, one Hennur and another in Electronic City, with 150 beds. Additionally, 130 beds are also planned to be added in Coimbatore by end-FY26.

 

Interestingly, Rainbow has planned 400 beds in Gurugram, of which 100 beds will come in FY26E and 300 by FY27E. These facilities are planned in Sector-56 and Sector-44 of the city, which remains an important micro-market. Rainbow is targeting margins of Madhukar hospital in Delhi HSD to improve to 12-15 per cent in FY25-26E.

 

Domestic brokerage Centrum Broking has increased its earnings per share (EPS) estimates for FY25/FY26/FY27E by 9 per cent/6 per cent/12 per cent factoring maturity profile of beds improving leading to enhanced operating performance. The brokerage firm predicts sales/Ebitda/PAT compound annual growth rate (CAGR) of 21 per cent/19 per cent/27 per cent over FY24-27E. 

 

However, over the same period, analysts expect Ebitda margins to decline 180 bps to 31 per cent due to planned bed expansion leading to high capex. Accordingly, the brokerage firm said that it values Rainbow at 1-year-forward EV/Ebitda of 24x (versus 22x earlier). The stock however, is trading above target price of Rs 1,610.