Rainbow Children’s Medicare IPO (Initial Public Offering) opened for subscription today. The Rs 1,581 crore public issue will remain open for subscription till Friday evening. Rainbow Children’s Medicare is a multi-speciality pediatric, obstetrics and gynecology hospital chain in India. The IPO of the company will be a mix of fresh issuance of equity shares and an offer for sale (OFS) by existing shareholders. Ahead of the issue, Rainbow Children’s Medicare has raised Rs 470 crore from 36 anchor investors. Rainbow Children’s Medicare IPO is the second issue of the current fiscal year. 

Issue details

Investors can bid for the IPO from today in a fixed price band of Rs 516-542 per share. Bids can be placed in a lot size of 27 equity shares and multiples thereafter. At the upper end of the price band, the minimum investment needed by investors to bid for the IPO is Rs 14,634. The IPO consists of a fresh issue of 51,66,052 equity shares of face value Rs 10 each. Further, 2,40,00,900 equity shares will be sold by existing shareholders of the company. This includes the promoters of the company, Ramesh Kancharla and Dinesh Kumar Chirla. 

Post issue the promoter group shareholding will come down to 49.8% from the current 62.2% while the public shareholding in the company will increase to 50.2% from 37.8%.

Through the funds raised by the fresh issue of equity shares, Rainbow Children’s Medicare intends an early redemption of NCDs issued by the Company and use the funds for capital expenditure towards setting up of new hospitals and purchase of medical equipment for such new hospitals. 50% of the issue is reserved for Qualified Institutional Buyers (QIB) while 35% is reserved for retail investors and 15% for Non-Institutional Investors.

Analysts bullish on prospects

ICICI Direct: Subscribe

“Rainbow Children’s Medicare has a focused children centric approach. The target market is expected to grow at a CAGR of 14% till FY26,” said ICICI Direct in a note. Analysts said that it will be key for Rainbow to sustain its growth trajectory amid increased consolidation in healthcare space and margin profile. “At the upper price band, it is valued at ~36.4x EV/EBITDA for FY21 and ~22.9x EV/EBITDA for 9MFY22,” they added while pinning a ‘Subscribe’ rating on the issue given its unique model and decent valuation.

Ashika Research: Subscribe

Analysts said that in terms of the valuations, on the higher price band, Rainbow Children’s Medicare demands a P/E multiple of 32.6x based on the first nine months of the previous fiscal year post issue fully diluted EPS and EV/EBITDA multiple of 25.3x based on 9MFY22 post issue fully diluted EBITDA. The industry P/E and EV/EBITDA is ~50x and ~30x which indicates that the IPO is suitably priced. “Given the growth in the healthcare segment, dominant presence in southern India, strong financials, expansion to new services and diversifying to new areas, will drive the company’s performance going forward. Hence, it is recommended to “SUBSCRIBE” the issue from the long term perspective,” they added.

Marwadi Financial Services: Subscribe

The brokerage firm highlighted that Rainbow Children’s Medicare will command a P/E Ration of 43.16x while peers such as Apollo Hospitals trade at 77.3x and Fortis Healthcare is at 56.9x. In the financial year 2020-21 the company had a revenue of Rs 6,500 million, and total expenses of Rs 6,046 million. “The company operates in a regulated industry, and compliance with applicable safety, health, environmental, labour, and other regulations or failure to obtain or renew approvals, licenses, registrations and permits, may adversely affect the business,” analysts said while highlighting risks aligned with the company.