Rainbow Hospitals: Targeting mid-to-late teens revenue growth

16 Feb 2024 , 11:35 AM

Analysts of IIFL Capital Services hosted Rainbow Hospitals at IIFL’s Investor Conference in Mumbai. Rainbow’s asset-light, hub-and-spoke model of expansion has driven its success in Hyderabad and it plans to replicate the same in other markets (Bangalore, Chennai, Delhi) through >50% capacity expansion over the next 3-4 years. Mgmt expects occupancy rate of >60% in mature hospitals & blended occupancy rate of 55% while ALOS to be around 2.5-3 days which should aid in mid-teens IP/OP volume growth. This along with increase in ARPOBs in-line with inflation will drive mid-to-late teens revenue growth over the next 3 years. Analysts of IIFL Capital Services believe the Op. Ebitda margins to remain around 26-27% given >50% bed capacity expansion. 

Expect occupancy rate of >60% in mature hospitals & blended occupancy rate of 55%, given 280 beds addition in Q4FY24 and another 160/100 bed addition in FY25/26 which will supress the overall occupancy rates. FY24 has been a muted year for Rainbow, owing to weak intensity of seasonal infections this year and was also partly impacted due to the cyclone in TN/AP during Q3FY24. 

Expansion plans remain on track to add >50% incremental beds over FY24-FY27: 

Rainbow will commission 280 new beds in Q4FY24 across Himayat Nagar (60 beds), Hydernagar (50), Anna Nagar (80) & Sarjapur (90). Mgmt doesn’t anticipate any start-up losses from Himayat Nagar & Hydernagar given Rainbow’s dominance in the core Hyderabad market. However, Anna Nagar & Sarjapur hospitals will take 12-15 months to achieve Ebitda break-even. Apart from 280 beds in Q4, Rainbow also remains on track to add 160/100 beds in FY25/26. Beyond, these 540 beds, Rainbow is to add another 400 beds in Gurgaon by setting up 2 hospitals (300+100 beds) of which the 100% payment is completed. The company has received the allotment letters for the 2 land parcels in Gurgaon and is working with government agencies to take possession of these land parcels. 

Rainbow Hospitals has higher margins with similar operating metrics vs an adult multi-specialty hospital because (i) OPD revenue as % of sales is 30% for Rainbow vs 16-18% for adult multi-specialty hospital, (ii) ALOS for Rainbow is around 2.6-2.8 days vs north of 4 days for adult hospitals, (iii) superior payor mix of 50/50% cash/insurance patients, (iv) 4-5% lower cost of consumables for Rainbow vs adult hospitals, and (v) 30% capacity beds of Rainbow are critical care ICU beds.