Systematix bets on Rainbow Medicare's pan-India leap; sees 27% upside

Systematix Institutional Equities (Systematix) has initiated coverage on Rainbow Children’s Medicare stock with a ‘Buy’ rating and a target price of ₹1,670 (upside of 27.3 per cent), valuing the company at 40x Sep 2027E price-to-earnings (P/E). 

 

On the bourses, Rainbow Medicare share prices rose up to 2.27 per cent to hit an intraday high of ₹1,354.05 per share. At 10:03 AM, Rainbow Medicare share price was trading 1.99 per cent higher at ₹1,350.30 per share. In comparison, BSE Sensex was trading 0.35 per cent higher at 82,462.75 levels. 

Rainbow Children’s Medicare, India’s only listed pediatric and maternity care chain, operates 22 hospitals and 5 clinics with around 2,235 beds across nine cities. Over the next three years, the company is set to transform into a pan-India brand as it expands its footprint beyond southern India.

 

 

Key expansion projects include a large hub hospital in Gurugram (North India) and the acquisition of a hospital in Guwahati, marking its entry into the Northeast, analysts said. Between FY20 and FY25, Rainbow consolidated its southern presence, achieving a 16 per cent/20 per cent/37 per cent revenue/Ebitda/net profit compound annual growth rate (CAGR), respectively. Volumes grew 8-9 per cent in line with bed capacity, while average revenue per occupied bed (ARPOB) nearly doubled. As a result, return on capital employed (RoCE) improved from 17 per cent to 20 per cent.

 

Systematix analysts believe Rainbow is well-positioned to capitalise on the structural shift in pediatric care from general hospitals to specialised facilities. The experts noted that “Rainbow is aptly placed to benefit from the transition of pediatric care from general hospital wards to specialty hospitals.” Supporting this view, JAMA data shows that in the US, pediatric hospitals have expanded bed capacity over the past decade, even as general hospitals reduced pediatric beds.  ALSO READ | Why did Systematix initiate coverage on Radico Khaitan? 16% upside seen

Expanding footprint and strengthening positioning

 

Rainbow plans to expand its capacity by ~56 per cent, from 1,935 beds in FY25 to 3,015 in FY28E, through new hub-and-spoke centres at Warangal, Coimbatore, Gurugram, Guwahati, and Rajahmundry. This includes adding 400-450 beds in Gurugram and 100 beds in Guwahati, marking its transition into a true pan-India platform.

 

Its pediatric-only focus enhances competitive positioning. Systematix analysts highlight that Rainbow’s child-centric environment, specialised multidisciplinary care, superior outcomes, and research-driven approach create a strong moat in a niche but fast-growing market. Such differentiation helps Rainbow stand out in India’s fragmented hospital landscape, where general multispecialty hospitals still dominate pediatric care.

Asset-light, hub-and-spoke model driving efficiency

 

According to Systematix, Rainbow follows a capital-efficient, asset-light model, leasing hospital facilities under long-term contracts. This keeps upfront capital expenditure low while enabling faster scale-up and quicker break-even.

 

The company’s hub-and-spoke model further enhances operational efficiency. Hub hospitals focus on tertiary and quaternary pediatric and maternity care, while spoke centres cater to outpatient, maternal, and emergency services. “This structure allows optimal utilisation of infrastructure and talent while deepening reach in key clusters,” the brokerage said.  ALSO READ | Niva Bupa newly rated 'Add' at JM Financial; 10% upside potential seen

Rainbow Children’s Medicare Growth outlook, valuation

 

With a planned 56 per cent bed expansion and diversification into IVF services, premium mother-baby care products, and higher-end quaternary pediatric care, Systematix expects Rainbow’s growth momentum to accelerate over FY25-28. The brokerage forecasts 13 per cent/14 per cent/20 per cent revenue/Ebitda/earnings per share (EPS) CAGR, respectively, and expects the company to maintain its industry-leading 34 per cent Ebitda margin.

 

Thus, analysts at Systematix value Rainbow at 40x Sep FY27E P/E, translating into a target price of ₹1,670, compared to its median historical trailing P/E of 55x.

 

However, the report cautions that intense competition in southern markets and potential lease renewal risks could affect profitability and long-term operational stability.