Rainbow Children's Medicare - Niche player in Hospital Industry

Disclaimer: I am new to the investment and have only 1 year of experience. I have compiled most of the below information from DRHP of the company. I am not invested in the company but closely tracking it.


Dr. Ramesh Kancharla, a Pediatrician is the Founder of the Hospital. He went to UK for 8 years. He did specialty in the City of London in Pediatric, Gastroenterology, liver disease and liver transplantation. He worked in one of the world’s best children’s hospitals called Great Ormond Street Children’s Hospital and the King’s College Hospital, London. So, that’s where he developed a deep understanding of children’s healthcare and also how bigger it could be. With that deep understanding and he came back to Hyderabad and saw an opportunity to do a Children’s hospital.

In 2013, UK Government fund CDC and Dubai’s Abraaj Group have co-invested Rs 100 crore in Rainbow Hospital, which started as a 60-bed hospital in 1999 at Hyderabad, is currently having 1500 beds with 14 hospitals in 6 cities of India.

Why Children Hospital?

Treating a heart of the Child is like repairing engine of the flight when it is in the Air. - Dr. Devi Shetty

Children differ from adults anatomically, physiologically, immunologically, psychologically, developmentally, and metabolically. Hence, different treatment is required to cure ailments in children. The children’s hospital is a very differentiated healthcare model because it requires a theme concept. And also, it’s a child focus environment and also different infrastructure is required.

The children’s healthcare requires some multidisciplinary approach. This is how it’s been built, 100 years ago first hospital in Paris that recognized the child centric approach is the essence of children’s hospitals. Worldwide children’s hospitals were built on multidisciplinary approach and Company have taken a similar approach and built with teamwork and working together to have better outcomes for sicker children.

Hub and Spoke Model

They have successfully developed this model in Hyderabad. They have started a Hub Hospital of 250 bed in Banjarahills of Hederabad. As hub matures they have started spokes of 50-75 beds around fast growing areas of the City.

There are 4 levels of medical care services are available.

  1. Primary Care

  2. Secondary Care

  3. Tertiary Care

  4. Quaternary Care

Tertiary and Quaternary Care require high Capex.

The hub hospitals will have the large Intensive Care services, Pediatric multi-specialty services and Quaternary care services. Where in spoke have only secondary care services. They have a transport service from the hub hospital.

So, whereas the spokes provides emergency services dominantly both from Maternal and Pediatrics and a very large out-patient services, level 2 Pediatric Intensive care and level 3 in NICU care and the complete spectrum of Obstetrics care. Any complexity arises from the spokes will get referred to the hub, from the hubs our specialist doctors like Neurologists and Nephrologists go over to the spokes on a weekly basis to do the outreach clinics.

They will implement this Hub and Spoke model in other existing network cities like Bangalore, Chennai, Vijayawada, Vishakhapatnam and NCR.

Medical Care from Fertility to Child Care:

They offer comprehensive healthcare services with greater synergies across fertility to child care.

(i) Child Care: pediatrics, including newborn and pediatric intensive care, pediatric multi-specialty care services and pediatric quaternary care, where we also perform multi-organ transplants in children, and

(ii) Women Care: obstetrics and gynecology, including normal and complex obstetric care, multi-disciplinary fetal care and perinatal genetic care, as well as fertility treatment, where we offer a wide range of assisted reproduction treatments.

(iii) Fertility care

Management believed in is that Obstetrics is a very synergistic to Pediatrics and childbirth is always safer in children’s hospital because, when you have a such a strong of Pediatric forte of level 3-level 4 Neonatal intensive care services and also of Pediatric multi-specialty program, we can address the problems much better during the pregnancy, at the time of birth, even post-delivery any problems of newborns will get addressed. . The whole system is very synergistic, complimentary and seamless.

Asset Light Expansion

Company operates hospital on lease basis, where the landowner develops building as per specifications of the company, which takes it on a long-term lease. Capital intensity in a leased model is approximately 50% lower than that of an owned model. Only 1 hospital in Vishakhapatnam out of 14 is owned. Company avoid doing land acquisition and construction as far as possible.

Market Size

In 2020 it’s about $18.5 billion for the overall pediatric and obstetric market and private healthcare market was about $10.4 billion for Pediatric and Obstetrics which is growing by 2026 to $36 billion of which a private market is doubling to $22.3 billion with the Pediatrics segment growing at 14% and obstetrics segment is growing at 12%. This provides huge opportunity for a well bult out model like Rainbow across the 6 cities.


  • Increasing health awareness to boost hospitalization rate

  • Rising income to make quality pediatric healthcare more affordable

  • Growing health insurance penetration to propel demand for the healthcare market, including pediatrics and neonatal care

  • Rise in maternity age

  • Rise in pregnancy complication

  • Rise in awareness and penetration of healthcare service in India

  • Rise in working women population in urban areas.

  • Changing consumer behavior away from traditional maternity practices.

  • Experiential Value-added services

  • Rise in demand for healthcare chains.

Comparative Analysis of Players in the Maternity and Pediatric Healthcare Delivery Sector

Rainbow Hospitals has the highest OPBDIT margin as of FY21 and FY20 among the peers considered


Rainbow hospitals rank 1st in terms of RoCE in the financial year 2020, among the peers considered


Comparative Analysis of Key Single-Specialty and Multi-Specialty Hospital Chains

Key financial ratios

Investment Thesis
•Management stated that they will add 150-200 beds every year in to their existing network cities. So breakeven time will be around 12-18 months for new capex.
•The size of industry is growing @ 14% and Rainbow as a niche player has enough opportunities to expand in other cities.
•Management has delivered 20% YoY growth and is guiding similar growth in future.
•Established and proven Hub and Spoke model for optimum utilization of capex which can be implemented in other new cities. This reflects in their EBIDTA margins and ROCE.
•Conservative and experienced management which has developed business very organically with good capital allocation decisions.

•If management turns aggressive in expansion and takes Greenfield route in newer cities which will take longer time to breakeven and might hit profitability for midterm.
•Govt. capping in charges of the medical services delivered by the hospital.
•Reputation of the hospital. Any adverse act may deteriorate image and occupancy levels of the hospital.


A: Bear Case

  1. Revenue growth of 15% vs Management Guidance of 20%
  2. EBITDA margins Contracting to 20% vs Management Guidance of 25%
  3. Valuation of Mcap/EBITDA of 15 times


B: Base Case

  1. Revenue growth of 20% as per Management Guidance
  2. EBITDA margins of 25% as per Management Guidance
  3. Valuation of Mcap/EBITDA of 22 times (Kims Trades @ 22)


C: Bull Case

  1. Revenue growth of 20% as per Management Guidance
  2. EBITDA margins of 28% because of Op Leverage
  3. Valuation of Mcap/EBITDA of 30 times (Max Trades @ 40)


I have 4 year old child and my experience are that Children Hospital is very sticky and profitable business. Children have to visit frequently for vaccination and immunity of child is weak and falls sick frequently than adults. And bill per visit is significantly higher than bills of an adult.

Rainbow is created on the western world’s model of True Children Hospital. Founder himself is a pediatrician and worked in the world’s best Children’s Hospital. He has been successful in creating Children Hospital with innovative Hub and Spoke model. Their EBIDTA margin and ROCE profile indicates the optimized utilization of their network. My tiny knowledge about investment suggest that they can generate high ROIIC (Return on Incremental Invested Capital) and have long runway for growth.

Company mainly focusing expanding most of the new beds in existing network cities where Brand is established. They will replicate successful Hub and Soke Model of Hyderabad to other existing cities. They will expand by way of Spoke Hospital and very less in existing Hub hospital as they have already established Hubs. So, they will continue to generate at least 25% EBIDTA and higher ROCE on their incremental Capex.

I have only 1 year of experience in the investment. I have given my Bear, Base and Bull Valuation above. As per my understanding about the company and valuations, there is no margin of safety as of now and may be Bull Case will pan out in coming 2-3 years from now.

Disc: I have not invested and tracking it closely. I request guidance from Senior Member @hitesh2710 @desaidhwanil @Worldlywiseinvestors @Donald of VP to refine my above investment thesis and thinking abt valuation.


@Anand_Dharsandia Thanks for your analysis. What is your impression of this hospital as a value-conscious parent compared to the alternatives available to you?

I’m also interested in understanding this: When the child gets sick, why a parent would choose this over a pediatrician in the neighbourhood (except for serious ailments) since most times sickness the child encounters is not serious and may not require multi-specialty, beds, etc.

Q1: Affordability of indian families are increasing and especially in metros where husband and wife both are working. There are value conscious parents who choses value services but I think India is under penetrated and Rainbow is positioned to take advantage of raising income and Value Migration and also penetration of Health Insurance.

Q2: Rainbow is not only operating large scale hospitals, they are also operating Spokes with 40-50 bed facilities in emerging areas of the cities, where their main focus is to capture outpatient and convert those patient when they have serious illness in to Inpatient. My personal experience is that who gives first dose of vaccination to child, that child becomes sticky patient to that hospital for several years at least 3-4 years till vaccination completes. However, we also visits small nearby paediatrician for little cold and fever but the main aim of these hospital is to attract Inpatient which contributed to 70% of the revenue. Out patient only contributed 30% of the revenue.

The main thesis behind Rainbow is how fast they expand beds and how fast they utilise the expanded beds with optimal operating margin and ROCE. I think Rainbow has done well in the past and will do well in the future also.


@Anand_Dharsandia, I could not find this split in the company disclosures, maybe I haven’t looked deep enough. Could you share the reference for this datapoint?

Rough calculations of total revenue from inpatient = # of beds * Bed Occupancy Ratio * ARPOB / day * ALOS
This works out to ~ INR 83M out of a total revenue of INR 5502M which is barely 2%!! 2% seems too small a number for inpatient revenue. Am I missing something in the calculation?


Pls go through Q2 FY 23 Earning Call. Attached screenshot for ready reference:


Can you do some valuation as recently it has moved up a lot…In one day even 8 to 10%…this was discussed in soic forum also, since then i think all are buying it…pls shed some.light onnvaluation and whether this is the right price for entry

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Hi Mudit, below is my views on valuations:

A: Bear Case

  1. Revenue growth of 15% vs Management Guidance of 20%
  2. EBITDA margins Contracting to 20% vs Management Guidance of 25%
  3. Valuation of Mcap/EBITDA of 15 times


B: Base Case

  1. Revenue growth of 20% as per Management Guidance
  2. EBITDA margins of 25% as per Management Guidance
  3. Valuation of Mcap/EBITDA of 22 times (Kims Trades @ 22)


C: Bull Case

  1. Revenue growth of 20% as per Management Guidance
  2. EBITDA margins of 28% because of Op Leverage
  3. Valuation of Mcap/EBITDA of 30 times (Max Trades @ 40)


What I think is bull case may pan out in next three years. But I want to still wait and watch (may buy small quantity 1%) 2-3 quarters as Q4 and Q1 will be seasonally low and Mr. Market may give us opportunity to add further.


Hi everyone,

Some queries related to the stock

I want to know how did the company showed good growth in FY2022 despite lockdown in 1st quarter.

In FY2022, how did the margins went to 32%

Any idea on the corporate governance issues ?

People who have personally visited this hospital, can they give a feedback as to how good the hospital is, what is wow factor , is it good quality of doctor or pricing, how they stand with respect to their competition ?

Took my son to Bangalore ORR hospital late in the night (as no local pediatrician was available at that time) in Jun’22. The emergency doctor/nurse staff were kind and the facilities were good. Went for a specialist consultation three weeks later and that doctor too interacted very well. It was a good experience overall, though they charge premium price. I did observe couple of foreigners while waiting for the consultation. One sales rep was holding a brochure for what looked like a genetic profiling test (don’t remember too clearly as i was in a hurry to get back to work after the consultation). The hospital was not too crowded and is sitting in a convenient location accessible to 1000s of parents who are working at various IT firms and startups.

Disc: Not invested in the company and no plans to buy at least for next one month. The observations mentioned above are at 30k feet as I wasn’t really looking at it from an investor’s perspective.


In Q4 FY 22 Earning Call, management stated that at 55% occupancy they do very high revenues and profitability. They have achieved that occupancy level in FY 22.

I think by 20 years of experience they have optimised the cost structure and I personally feel that Margins are high in Children Hospital than a normal hospital. I have 4 year old child and had many round of vaccination and visit to paediatrician. The average cost of vaccination is 1500/- per visit which takes less than 5 min and assume that cost of medicine goes to that vaccination seems very low.

Now a days all mother prefer C section delivery as they don’t have to take labor pain. And many deliveries are premature where baby needs to be admitted in NICU where charges are very high and cost are low compared to adult ICU. Pregnancy complications are increasing day by day due to lifestyle changes.

I am don’t admire our medical system personally but all above views are purely from Investor perspective.

Dis.: Not Invested Tracking Closely.


Great to know that you have real experience of Rainbow hospital. I really need to know following intangibles (which only can be experienced) about rainbow from you:

  1. How is the brand image of rainbow in your Area?
  2. Management emphasise in every call that they are different in treating a child. They always focus in Institution First approach where a team of doctors deliver best results. have you felt any thing like that?
  3. They have soothing and child focus environment and interiors and behaviour of all the staff is very child friendly. They focus very much in those aspect of child care and invest good amount in Interior and staff training. is it true?
  4. I really pray to the God that you never have to visit any hospital for your little one or any family member. But in case, do you prefer to visit again for any health issue?

Thanks in advance for answering above. You may add if you feel.

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My visits had been for minor health issues hence I may not be able to give a clear answer for all those questions. But here goes my view.

  1. I moved out of Bangalore couple of months back, however, Rainbow is a preferred choice for quite a few professionals staying around that area for their kids, however, Cloudnine was the preferred choice for Obstetrics
  2. Visited for minor issues hence not really in a position to comment on it
  3. This is certainly one thing I liked the most. They were super friendly to the kid, which I believe is the ultimate differentiator for a hospital. Felt they were genuinely interested to make the kid feel at ease. Emergency ward had couple of really cranky kids due to their illness, but they were calm and composed. As a father, it was reassuring to find such a place for consultation
  4. Forget about my view (which will be an obvious yes), my son asked me to find a hospital similar to Rainbow in the place where we moved now

My 2 cents - This hospital (the one at ORR) will make lot of money as long as these IT companies continue stay in this part of the city and the hospital staff remain friendly to the kids who come for treatment


My wife delivered here in Rainbow Marathalli , it was normal delivery with baby girl.
all in , experience was good from day 1 with consultation from gynac.
Doctor and staff were good and total cost incurred was 1.25 L.
After that still we are following up for monthly checkups so i would say stickiness is there.
PS : Not invested but tracking


Normal deliver charge of 1.25L - Wow. Need to study the company numbers more closely now.

Thanks Deepansh for sharing your real experience. We would like to know following inputs from you:

  1. How is the Brand of Rainbow in your area?
  2. What would be the cost of Normal Delivery in similar Hospitals like Cloud 9 etc.?
  3. What would be the cost of Normal Delivery in Local Gynec Hospital in your nearby area?
  4. If you have experience of similar hospital as rainbow, what will drive patient to chose Rainbow?
  5. You can also add anything from your survey done before or some scuttlebutt done before choosing Rainbow.
    Thanks for providing real experiences.
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Recently very sad incidence with my friend’s relative:

A premature baby born on 6th month, weight of the baby was only 700gm. The cost of NICU for such critical baby was 15000/- per day in Tire II cities like Rajkot. And this requires months of observation under NICU.

I think such many treatments offered by Rainbow helps them to achieve margin and return ratios.

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Just a comparison of ROIC for different hospitals

Disc: no reco.


Thanks Ishmohit for sharing. Can you provide this entire report for our further study? I think Rainbow deserves what market is giving to Max.

Disc: Not Invested. Tracking

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Some private equity firm sold 14% stake , any idea anyone ?

  1. Brand Rainbow in Bangalore is pretty solid. they have just 3 hospitals compared to cloud 9. Rainbow is building more trust with the patients. Compared to say Manipal, I would prefer to visit Rainbow. Google rating wise cloud 9 is higher but there are business development associates who would request you to put a 5 star. :sweat_smile:
  2. Cost wise cloud 9 is more expensive and they have a lot of seminars, classes. But their key doctors have shifted to rainbow. And now I see a lot more people waiting to consult them
  3. We had to go through an abortion due to a heart defect of the baby in the 20th Week. I saw that the hospital was closely connected to fetal medicine super specialty clinic ( like BFMC bangalore) . Their staffs are also trained by BFMC which puts faith. Rainbow gets a lot of referrals from rural Bangalore due to abnormality of fetus

If you need to understand anything specific , lets connect in private chat.