Rainbow Children’s Medicare IPO Subscription, GMP, Review on Day 2; Should you Buy?

Rainbow Children’s Medicare initial public offering (IPO) received muted response from the investors on the second day of bidding. The public issue was subscribed 44 per cent on Thursday. Rainbow Children’s Medicare IPO received bids for 49,58,95 shares against offer size of 2.05 crore shares. The retail investors bid for 70 per cent of their quota. Employee quota was subscribed 11 per cent of the reserved portion. The portion set aside for the qualified institutional buyers (QIBs) was booked 10 per cent while quota reserved for non-institutional investors 34 per cent.

Rainbow Children’s Medicare is a leading multi-specialty paediatric and obstetrics and gynaecology hospital chain in India. Spread over six cities, the company operates 14 hospitals and three clinics. With its initial public offering, the group is planning to raise Rs 1,581 crore.

Rainbow Children’s Medicare IPO details

Rainbow Children’s Medicare IPO will be open for subscriptions till April 29. The IPO comprises a fresh issue of shares worth Rs 280 crore and an offer for sale of Rs 1,301 crore by promoters and investors. The price band has been fixed at Rs 516-542 per share.

Rainbow Children’s Medicare IPO: Objective

From the net proceeds, the company aims to utilise the Rs 40 crore towards funding for early redemption of NCDs issued by them to one of their group companies. Around Rs 170 crore would go towards setting up of new hospitals and purchase of medical equipment and general corporate purpose.

Rainbow Children’s Medicare IPO: Anchor Investors

Rainbow IPO has already raised about Rs 470 crore from anchor investors ahead of the opening of the issue. As per BSE data, around 8,663,404 equity shares were allotted to the anchor investors at Rs 542 apiece aggregating to Rs 469.55 crore.

Rainbow Children’s Medicare Financials

The company registered 228 per cent year-on-year profit to Rs 126 crore during the first nine months of FY22. It recorded with strong revenue and healthy margin expansion. The company also posted a 57 per cent year-on-year jump to Rs 760 crore in revenue for period under review. The EBITDA rose 97 per cent year-on-year to Rs 260 crore in same period, with a margin of 33.7 per cent. Moreover, RoE stood at 21.3 per cent in 9MFY22, against 8.6 per cent year-on-year and 8.8 per cent in FY21. Rainbow has maintained a low average long-term debt-to-equity ratio of 0.1x.

Rainbow Children’s Medicare IPO Valuation

“On FY22 annualized financials, the IPO is valued at 15.8x EV/EBITDA, 5.3x EV/sales and 33x P/E, which is largely comparable with peers,” said Reliance Securities.

“Considering the trailing twelve months (December 2021) earnings per share or EPS of Rs 12.56 on a post issue basis, the company is going to list at a price to earnings of 43.16x with a market value of Rs 5,501 crore whereas peers Apollo Hospital Enterprise and Fortis Healthcare are trading at PEs of 77.3x and 56.9x respectively,” Marwadi Financial Serviecs said.

Rainbow Children’s Medicare IPO: Should you Subscribed?

“Rainbow Children’s Medicare has a focused children centric approach. The target market is expected to grow at a CAGR of 14 per cent till FY26. However, key for Rainbow would be sustained current 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. We assign subscribe rating given its unique model and decent valuation,” said ICICI Direct in a report.

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