Rainbow Children’s Medicare
Rainbow Children’s Medicare is coming out with a 100% book building; initial public offering (IPO) of 2,94,38,884 shares of Rs 10 each in a price band Rs 516-542 per equity share.
Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on April 27, 2022 and will close on April 29, 2022.
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 10 and is priced 51.60 times of its face value on the lower side and 54.20 times on the higher side.
Book running lead managers to the issue are Kotak Mahindra Capital Company, J.P.Morgan India and IIFL Securities.
Compliance Officer for the issue is Ashish Kapil.
Profile of the company
Rainbow Children’s Medicare is a leading multi-specialty pediatric and obstetrics and gynecology 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. According to the CRISIL Report, the company had the highest number of hospital beds amongst comparable players in the maternity and pediatric healthcare delivery sector, as of March 31, 2021. The company’s core specialties are pediatrics, which includes newborn and pediatric intensive care, pediatric multi-specialty services, pediatric quaternary care (including multi organ transplants); and obstetrics and gynecology, which includes normal and complex obstetric care, multi-disciplinary fetal care, perinatal genetic and fertility care.
The company established its first pediatric specialty hospital in 1999 in Hyderabad, Telangana. Since then, under the leadership of Dr. Ramesh Kancharla, its founding Promoter, it has established its reputation as a leader in multi-specialty pediatric services, with strong clinical expertise in managing complex diseases. It has also expanded its operations to include obstetrics and gynecology services, whereby it offers comprehensive perinatal services to patients. As of the date of this Red Herring Prospectus, five of its hospitals are accredited by NABH and three of its hospitals are certified by EDGE.
The company follows a doctor engagement model whereby most of its core specialists work exclusively at its hospitals on a full-time retainer basis. This model ensures that most of its core specialists are available 24/7 on a roster basis at its hospitals, which is particularly important for children’s emergency, neonatal and pediatric intensive care services. As of December 31, 2021, it had 641 full-time doctors and 1,947 part time/visiting doctors. The company’s fulltime doctor model along with a strong middle grade doctor pool ensures seamless healthcare delivery across its hospitals, which has resulted in a high degree of patient satisfaction. A number of its doctors in neonatal, pediatric intensive care, pediatric sub specialties, obstetrics and gynecology are trained or possess qualifications from the United Kingdom, United States, Canada and Australia, which provides it with a competitive advantage.
Proceed is being used for:
Early redemption of NCDs issued by the company to CDC Emerging Markets Limited (CDCEML), one of its Group Companies, in full.
Capital expenditure towards setting up of new hospitals and purchase of medical equipment for such new hospitals.
General corporate purposes.
Industry overview
Paediatric care is dedicated medical care for children for growth and development, nutrition, prevention of illnesses and treatment of illnesses in children. Pediatrics is the specialty of medical science concerned with the physical, mental, and social health of neonates, children, and adolescents. Paediatric care encompasses a broad spectrum of health services ranging from preventive health care to the diagnosis and treatment of acute and chronic diseases. Children differ from adults anatomically, physiologically, immunologically, psychologically, developmentally, and metabolically. Hence, different treatment is required to cure ailments in children. A pediatrician is a physician who is concerned primarily with the health, welfare, and development of children and is uniquely qualified for these endeavors.
Paediatric care is dedicated medical care for children with serious disease. Paediatric care focuses on growth and development, nutrition, prevention of illnesses and treatment of illnesses in children. Paediatric care is facilitated by a panel of doctors, nurses and other expert caretakers who work together to provide medical care to children below 18 year of age. In CRISIL Research’s assessment, they have considered paediatric market as the health care delivery to children in the age bracket 0-18 years. In India, paediatric healthcare services are offered by public hospitals through district level hospitals and other government healthcare facilities, private multispecialty hospitals through established PICU and NICU wards, standalone paediatric chains, children multi-specialty hospitals, standalone children hospitals, and mother & child hospital.
The total hospital market size in India in the financial year 2020 was expected to be approximately Rs 4,270 billion growing at a CAGR of 13% between the financial years 2016 and 2020. The maternity market in India has seen a growth of 8% between the financial years 2016 and 2020 and is expected to grow at 7-8% between the financial years 2020 and 2026 supported by strong growth in private segment of 11-12% CAGR during the same period. The private sector is expected to grow faster on account of increased penetration of institutional deliveries, rising share of private hospitals in rural and urban areas, increase expenditure on maternity healthcare, and rise in treatment cost on account of delayed deliveries. Paediatric market which has grown at 14% CAGR between the financial years 2016 and 2020 is expected to grow at the same growth going forward supported by growth in both private and public sector healthcare units. Increasing awareness on childcare and early diagnosis is expected to contribute to growth for the industry.
Pros and strengths
Leading pediatric multi-specialty healthcare chain: The company one of India’s largest multi-specialty pediatric care providers (based on hospital beds, as of March 31, 2021), with a presence across various specialties such as neurology, nephrology, gastroenterology, oncology and cardiology. It has built a comprehensive pediatric critical care program and have consistently allocated approximately one-third of its operational beds at all its hospitals to critical care. In addition, it has established advanced neonatal and pediatric intensive care services across its hospitals. It provides complex multi-specialty tertiary intensive care at its hub hospitals, which provides it with a significant competitive advantage.
Comprehensive perinatal care provider: In the initial years of its corporate history, the company was focused on establishing its capabilities and reputation as a leading provider of pediatric care. As its pediatric operations grew, it realized that many pregnancies require deliveries in a comprehensive perinatal ecosystem, to address incidents of high-risk pregnancies, babies requiring immediate surgical interventions and other neonatal interventions right after birth. As a result, it leveraged its Rainbow brand, which was already well recognized in pediatrics, to expand into obstetrics and gynecology in 2007 and offer comprehensive perinatal services. Its ability to offer integrated pediatric, along with its obstetric and gynecologic services, enables it to provide very effective and cost-efficient one-stop healthcare solutions to families. This is largely attributable to the synergies between its pediatric care and its obstetrics and gynecology services.
Executes Hub-and-spoke model: The company has successfully executed a hub-and-spoke model at Hyderabad, Telangana with its Banjara Hills hospital (comprising 250 beds) being the hub that is complemented by four spokes at four locations in Hyderabad, Telangana namely Secunderabad, LB Nagar, Kondapur and Hydernagar. At its hub hospital, it provides comprehensive outpatient and inpatient care with a focus on tertiary and quaternary care and, at its spokes, it provides secondary care in pediatric, obstetrics and gynecology and emergency services. Under this model, its super-specialty doctors based at its hub hospital are able to reach out to the larger community and cover a larger catchment area. This model has enabled it to evolve over the past two decades from a single secondary care hospital in Hyderabad, Telangana to six hospitals in the city and as an established provider of tertiary and quaternary care services at its hub hospitals.
Strong track record of growth: The company has grown its bed capacity from 50 beds in a single hospital in 1999 to 1,500 beds across 14 hospitals as of December 31, 2021. During its first decade of operations, it focused on creating the right treatment protocols, right doctor engagement model and the appropriate business model. Post this phase, it focused on growing the number of hospitals and bed capacity at the hospitals. Over the last six years, it has added 985 beds across 10 hospitals and have expanded its presence from two cities to six cities. It has followed a financially disciplined model, focusing on cost-effective growth. All its capital investments are carefully deliberated and approved by its experienced Board of Directors. Going forward, it may seek to expand its hospital network through the acquisition of brownfield assets or development of greenfield assets (depending upon the location of the hospital and the timelines to complete the project).
Risks and concerns
Maximum revenue comes from hospitals in Hyderabad and Bengaluru: Of the company’s 14 hospitals, six are situated in Hyderabad, Telangana and three are situated in Bengaluru, Karnataka. A significant percentage of its patients are served by its hospitals in Hyderabad, Telangana and Bengaluru, Karnataka. For the financial years 2019, 2020 and 2021, and the nine months ended December 31, 2021, its aggregate inpatient and outpatient volume for its hospitals at these cities was 706,823 patients, 825,373 patients, 533,355 patients, and 515,080 patients, respectively. For the same periods, volumes at these hospitals accounted for 84.07%, 81.89%, 78.98% and 77.28%, respectively, of its aggregate inpatient and outpatient volumes across all its hospitals. Any material impact on its revenues from its hospitals in Hyderabad, Telangana and Bengaluru, Karnataka or from its pediatrics secondary care services could have a material adverse effect on its business, financial condition, results of operations and cash flows.
Huge capital requirement: The company operates in a capital intensive industry and may need additional funding to finance its operations, particularly for investments in hospital infrastructure, and growth strategies. Sources of additional financing may include commercial bank borrowings, supplier financing, or the sale of equity or debt securities. There can be no assurance that it will be able to obtain any additional financing on terms acceptable to it, or at all. The cost of raising capital may be high. Any additional funding it obtains may strain its cash flows and financial condition.
Need to maintain bed occupancy rates at sufficient levels: For the financial years 2019, 2020 and 2021, and the nine months ended December 31, 2021, the company’s bed occupancy rate was 54.13%, 56.27%, 34.23% and 46.18%, respectively, with the decrease between the financial years 2020 and 2021 being largely due to the impact of COVID-19, despite an increase in its number of available beds, number of hospitals and ARPOB over the period. For the financial years 2019, 2020 and 2021 and the nine months ended December 31, 2021, its revenue from operations was Rs 5,427.92 million, Rs 7,193.91 million, Rs 6,500.47 million and Rs 7,613.11 million, respectively. Other factors affecting bed occupancy, many of which are beyond its control, include complexity of treatment, lengths of stay, brand recognition, reputability of doctors, the strength of its referral network, the demographic characteristics of patients including their access to public health facilities, and changes in applicable government regulations. If the company fails to maintain or improve the bed occupancy rates while the company continue to make significant capital investments, its business, financial condition, cash flows, results of operations and prospects may be materially and adversely affected.
Intense competition from other healthcare service providers: The healthcare industry and, in particular, the pediatric, obstetrics and gynecologic healthcare markets, are highly competitive in India. The company faces competition from a large number of public hospitals, private hospitals, clinics and private practitioners located in the same geographic areas in which it operates. The company competes on the basis of factors such as speciality and other service offerings, quality and selection of medical professionals, affordability, quality of care, technology, quality of hospital facilities, patient satisfaction, brand and reputation. The company’s competitors may expand their healthcare networks, which may exert further pricing and recruiting pressure on it. If it is unable to compete effectively with its competitors, its market share, business, financial condition, results of operations and cash flows could be materially and adversely affected.
Outlook
Rainbow Children’s Medicare is a leading multi-specialty pediatric and obstetrics and gynecology 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 grown its business by establishing new hospitals, acquisition of standalone hospitals and expanding or upgrading its existing facilities. Moreover, the company also plans to increase the scale of its reach to patients through a robust digital ecosystem. On the flip side The company’s revenues are highly dependent on its hospitals in Hyderabad and Bengaluru. It is also significantly dependent on certain specialties for a majority of its revenues. Any impact on the revenues from these hospitals or specialties could materially affect its business, financial condition, results of operations and cash flows.
The issue has been offered in a price band of Rs 516-542 per equity share. The aggregate size of the offer is Rs 1519.05 crore to Rs 1595.59 crore based on lower and upper price band respectively. Minimum application is to be made for 27 shares and in multiples thereon, thereafter. The company’s total income increased by 56.60% to Rs 7,740.62 million for the nine months ended December 31, 2021 from Rs 4,942.93 million for the nine months ended December 31, 2020 primarily due to an increase in revenue from operations. Moreover, the company’s profit for the period significantly increased to Rs 1,264.13 million for the nine months ended December 31, 2021 from Rs 385.25 million for the nine months ended December 31, 2020.
Going forward, the company has successfully created a hub and spoke model in Hyderabad, Telangana through its network of a hub hospital in Banjara Hills, Hyderabad, Telangana supported by four spokes spread across the city. This model provides patients access to multidisciplinary level 4 neonatal and pediatric intensive care and pediatric subspecialty care at the hub hospital while at the same time providing access to 24/7 emergency, pediatric secondary and tertiary care and full spectrum of obstetrics and gynecology closer to home at the spokes. The model is financially optimal, as spokes are set up at lower cost. It plans to replicate this model across key cities and regions in the country.
