Rainbow Children's Medicare Limited RAINBOW.NS
October 10, 2023 - 8:27pm EST by
marwari25
2023 2024
Price: 1,059.00 EPS 0 0
Shares Out. (in M): 102 P/E 0 0
Market Cap (in $M): 1,200 P/FCF 0 0
Net Debt (in $M): -100 EBIT 40 50
TEV (in $M): 1,100 TEV/EBIT 27.5 22

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  • India
  • Small Cap
 

Description

 

 Investment Summary

India among fastest growing economies in the world. Thousands of listed companies make it an interesting place to fish for smaller companies with growth over the next decade or two. I track hundreds of small, mid and nano caps in India and around the world to build a portfolio of companies with growth potential

 

Rainbow Children’s Medicare listed in India is a $1.2 bn market cap business with profitable growth and operating cash and incentive alignment by owners and doctors

 

The company is the largest private multi-specialty pediatric and obstetrics hospital chain in India. The niche pediatric market presents a large growth opportunity for specialized child healthcare and maternal services and is underserved.

 

India has the largest adolescent population in the world, 260 million as compared to under 20,000 pediatric beds. Demand exceeds quality supply.

 

India has 1.9 million beds for private and public hospitals, but out of this just 18,000 are pediatric beds. The mismatch is significant.

 

The total bed capacity of Rainbow group is 1,655 beds (1186 operational beds) as of Jun 2023 with operational bed capacity to grow by 40% by 2026

 

Rainbow adopts an asset light model with a hub and spoke model in the following Indian cities: Hyderabad (830 bed capacity), Bengaluru (352 beds), Chennai (190 bed), Delhi (154 bed), Visakhapatnam (129 bed), Vijayawada (130 bed)

 

Over the next 4-5 years, 1000 beds will be added, 400 beds in Delhi NCR and 600 in South India through spokes in cities of Hyderabad, Bengaluru, and Chennai

 

Hyderabad is the model for the company to pursue a asset-light hub and spoke model

 

Higher proportion of sales (70%) is derived from pediatrics which leads to higher margins relative to the industry and average revenue per operating bed  

 

Bed utilization is ~50%, improvements will manifest in operating leverage, higher margins, and free cash

 

The management team is led by Dr Ramesh Kancharla and Dr Dinesh Chirla who own just under 40% of the company. They eat their own cooking.

 

Rainbow has an ESOP plan for the employees with over 100 doctors own considerable equity capital of the company

 

In the last 12 months, the company generated roughly $150mm in revenue and roughly $40mm in operating cash. In my base case, Rainbow should grow revenue to $370mm and $100mm in operating cash over the next 5 years. Investors can use any declines in the stock to build a larger position.

 

History

 

1999: Began Operations with first hospital at Banjara Hills, Hyderabad

 

2007: Added hospital at Vijayawada. Expanded into obstetrics and gynecology

 

2009: First spoke established at Vikrampuri, Hyderabad

 

2013: Established hospital in Kondapur, Hyderabad; CDC Group invests

 

2015: Established two hospitals at Hydernagar, Hyderabad and Marathahalli, Bengaluru

 

2017: Expanded into North India with Madhukar Rainbow Children’s Hospital at Malviya Nagar, New Delhi

 

2018: Expanded into Chennai with launch of a hospital in Guindy

 

2019: Started IVF facility at Kondapur, Hyderabad

 

2020: over 125,000 outpatient video consultations during the pandemic

 

2022: Got listed on BSE and NSE

 

2023: 7th hospital at Financial District, Hyderabad expanded our count to 16 hospitals

 

Business model

 

Incorporated in 1998, Rainbow Children’s Medicare is India’s leading multi-specialty pediatric hospital chain with 2 decades of experience in pediatric, obstetrics, gynecology, and fertility care

 

The company has 16 hospitals (8 old>5 years, 8 <5 years), 3 clinics in 6 cities with a total bed capacity of 1,655 beds

 

Cities: Hyderabad (830 bed capacity), Bengaluru (352 bed), Chennai (190), Delhi (154 bed), Visakhapatnam (129 bed), Vijayawada (130)

 

90% of the beds offered by Rainbow are in South India region. In the appendix section are pictures of various hospitals and clinics

 

The company operates a hub-and-spoke operating model

 

hub hospitals typically 150-200 beds provide comprehensive outpatient, inpatient care, with a focus on tertiary and quaternary services

 

A hub is connected to several smaller ‘spoke’ hospitals or clinics typically 50-125 beds

 

spokes provide 24/7 emergency care in pediatrics and obstetrics, large outpatient services and comprehensive obstetrics, pediatric and level 3 NICU services

This model is successfully operational at Hyderabad and the long-term goal is to replicate this approach in the country, starting with Bengaluru, Chennai and NCR  

 

The company plans to grow capacity by 40-50% the next 4-5 years, and has acquired land to facilitate expansion

 

3,581 permanent employees, 730+ Full-time doctors

 

100+ research papers published in 2022-2023

 

95% survival rates for complex cardiac surgeries, include extremely complex congenital defects

 

90% survival rates on transplant cases (Liver, Bone Marrow, Kidney)

 

The company has an 87% doctor retention ratio. The high retention ratio is due to financial incentives and availability of a 24x7 team

 

The below is an approximate table of hospitals, commencement year, bed capacity and land

 

Rainbow hospital

Year

Bed capacity

Land type

Hyderabad Cluster:

 

 

 

Banjara Hills (Hub)

1999

250

Leased

RCHI Heart Institute (Spoke)

2019

110

Leased

Vikrampuri (Spoke)

2007

110

Leased

Kondapur (Spoke)

2013

50

Leased

Hydernagar (Spoke)

2014

110

Leased

LB Nagar (Spoke)

2016

100

Leased

Financial district (Spoke)

2023

100

Leased

Central Hyderabad (Spoke)

H2FY24

60

Leased

Hydernagar (Spoke)

H2FY24

60

Leased

 

 

 

 

Bengaluru:

 

 

 

Marathahalli (Hub)

2015

200

Leased

Bannerghatta (Spoke)

2016

102

Leased

Hebbal (Spoke)

2020

50

Leased

Sarjapur (Spoke)

H2FY24

80

Leased

 

 

 

 

Andhra Pradesh:

 

 

 

Currency Nagar

2007

130

Leased

Health city

2020

129

Owned

Delhi:

 

 

 

Madhukar (Hub)*

2017

135

Leased

Rosewalk Luxury (Spoke)

2019

24

Leased

 

 

 

 

Chennai:

 

 

 

Guindy (Hub)

2018

135

Leased

OMR (Spoke)

2022

55

Leased

Anna Nagar (Spoke)

H2FY24

80

Leased

Source: Company, analyst estimates

 

Below are pictures of the various hospital hubs and spokes:

 

Hyderabad

 

In Hyderabad, Banjara Hills Hospital, 250 beds, serves as the hub, and is complemented by six spokes located in Vikrampuri, LB Nagar, Kondapur, Hydernagar, Financial District and RCHI, Banjara Hills

 

A collage of buildings

Description automatically generated

 

Bangalore

 

similar hub-and-spoke model in Bengaluru, with hub at Marathahalli

 

A collage of buildings

Description automatically generated

 

Chennai

 

hub-and-spoke model in Chennai, with hub at Guindy and spoke at OMR(Sholinganallur)

 

A building with a sign on the front

Description automatically generated with medium confidence

 

Delhi

A building with trees in the background

Description automatically generated

 

Visakhapatnam

 

A building with a green lawn

Description automatically generated

 

Vijayawada