Rainbow Children's Medicare IPO: Information analysis

Incorporated in 1998, Rainbow Children's Medicare is one of India's largest specialty hospital chains that focuses on paediatric, obstetrics and gynaecology. Started as a 50-bed hospital in Hyderabad, it now has 14 hospitals and three clinics in six cities with a total bed capacity of 1,500, as of December 2021. The hospital's specialty paediatrics services include newborn and paediatric intensive care and paediatric quaternary care, and specialty obstetrics and gynaecology services include normal and complex obstetric care, multi-disciplinary fetal care, and fertility care. During FY21, the company generated 84 per cent revenue from hospital services, 13.4 per cent from pharmacy sales and 2.5 per cent from hospital service fees.

Rainbow Children's Medicare follows a hub and spoke model to provide synergy in its operations. Its Banjara Hills hospital in Hyderabad, has 250 beds and acts as a hub where comprehensive outpatient and inpatient care with a focus on tertiary and quaternary care is provided. Secondary care in paediatric, obstetrics and gynaecology and emergency services are provided in its spoke hospitals. The same model is about to be implemented in their Bengaluru, Chennai and Delhi hospitals as well. The hospitals also provide video consultations. In FY21, it conducted 1,25,000 video consultations. Rainbow Children's Medicare has a full-time retainer model for its doctors, which endures 24x7 availability of doctors at its core hospitals. As of December 2021, the specialty chain had 641 full-time doctors and 1,947 part-time/visiting doctors.

It must be noted that despite the company's niche specialty, there are a number of competitors who not only provide similar services but are also present in the broader healthcare market having more room for growth. As the Rainbow Children's Medicare goes forward with expansion, it has to face competition from established players such as Apollo Hospitals, Max Healthcare, KIMS, etc. India's maternity market is expected to grow at 8 per cent CAGR till 2026 with the private segment expected to grow at 12 per cent CAGR. Rising income levels, awareness about health and diseases, and insurance coverage are some factors that are expected to propel the growth.

Strengths:

1) Specialised healthcare services: Although their niche presence may not give them much room to grow compared to a broader healthcare service provider, their specialisation in paediatrics has made them a reputed player. Rainbow Children's Medicare has created a children-friendly environment - from treatment to ambience, which is not usually available with broader healthcare providers. Combining this with their high-quality healthcare services makes them attractive to people.

2) Doctor engagement model: Unlike few other hospitals where even core doctors work on a part-time basis, the company's specialists work exclusively in their hospitals and are available 24x7. At the time of joining, the doctors enter into a retainership contract for a two or three-year period. This ensures stability in the hospitals. In the last two financial years, Rainbow Children's Medicare had 81 per cent full-time doctor retention.

3) Strong track record: In 1999, it started out as a single hospital with a bed capacity of only 50 beds. From there, it has expanded rapidly in terms of the number of hospitals and number of beds. In the last six years, Rainbow Children's Medicare has added 985 beds across ten hospitals. Since FY19, the chain has had four hospitals and 338 beds. Since its inception, it has witnessed strong growth and established itself as one of the best padeatric hospital chains in India.

Weakness:

1) Revenue and geographical concentration: Out of the 14 hospitals it has, six are in Hyderabad and three are in Bengaluru. As of FY21, these hospitals accounted for 79 per cent of aggregate inpatient and outpatient volume. Any impact of operations in these two cities can adversely affect its overall revenues.

2) Decreasing KPIs: Since FY19, Rainbow Children's Medicare's occupancy rate, inpatient volume, outpatient volume, number of nurses and average length of stay has decreased. The occupancy rate decreased from 54.1 per cent in FY19 to 46.5 per cent, as of December 2021. While the number of nurses increased between FY21 and 9MFY22, between FY19 and FY21 it decreased by 16.6 per cent.

3) High level of competition: Healthcare industry is a highly competitive space filled with both broader level players and niche players. While its specialisation may give a competitive advantage over other players, a simple expansion from the other side can increase the competition multifold.

Also read about Rainbow Children's Medicare IPO: How good is it? to learn how we evaluate the company on various metrics.

Disclaimer: The author may be an applicant in this Initial Public Offering.