Rainbow Children's Medicare lists at 7% discount to issue price

The stock listed at Rs 506, a 7% discount when compared with its issue price of Rs 542 per share on the BSE.

Rainbow Children's Medicare (RCML), a multi-speciality pediatric hospital chain, made a weak stock market debut with its shares listed at Rs 506, a 7 per cent discount when compared to its issue price of Rs 542 per share on the BSE on Tuesday.

At 10:04 am, the stock traded at Rs 492.30, down 9 per cent against its issue price. The stock so far hit a high of Rs 519.35 and a low of Rs 482 on the BSE in intra-day trade. In comparison, the S&P BSE Sensex was down 0.04 per cent at 54,449.

"The muted listing can be attributed to volatile and negative market sentiment and a lack of investor interest in hospital businesses. The company has a specialized nature of business, an experienced management team, proven ability to attract, train and retain high-caliber medical professionals. However, the hospital is a highly competitive business and normalization of profitability post Covid makes it suitable only for aggressive investors for the long-term. Those who applied for listing gains can maintain a stop loss of Rs 500," said Santosh Meena, head of research, Swastika Investmart.

RCML’s initial public offering (IPO) garnered good response and the issue was subscribed 12 times. The institutional investor portion of the issue was subscribed 38.9 times, high networth individual portion garnered 3.73 times subscription and the retail portion was subscribed 1.4 times.

Hyderabad-based Rainbow Medicare raised Rs 280 crore from the IPO. The issue also consisted of secondary share sale worth Rs 1,300 crore. The issue was priced at 43 times the company’s trailing 12-month (Dec 21) earnings. Analysts said this was attractive compared to peers such as Apollo Hospital Enterprise and Fortis Healthcare, which are trading at price-to-earnings multiples of 77 times and 57 times, respectively.

The company proposed to utilize the net proceeds from the fresh issue towards funding the early redemption of NCDs issued by the company, in full. The company will also use the funds for capital expenditure towards setting up of new hospitals and purchase of medical equipment for such new hospitals and general corporate purposes.

The Hospitals’ leadership position in pediatrics, especially in relation to complex diseases, provides it with a significant competitive advantage. It is expected that the pediatric healthcare market in India to grow from Rs 1,010 billion as of March 31, 2021 to Rs 2,100 billion by the end of the financial year 2026, at a CAGR of 13 per cent. RCML is well placed to benefit from this expected growth in the industry, HDFC Securities had said in IPO note.

Dependent on medical professionals as RCML’s business and financial results could be impacted if it is not able to attract and retain such medical professionals. RCML engages doctors primarily on a consultancy service contract basis and there is no assurance that these doctors will not prematurely terminate their agreements. The company’s revenues are highly dependent on hospitals in Hyderabad and Bengaluru. It is also significantly dependent on certain specialties for a majority of its revenues are among key concerns said the brokerage firm.