Rainbow Childrens Medicare Limited — Q3 FY25 earnings call

Call held 10 Feb 2025

Management summary

Rainbow Children's Medicare delivered a strong Q3 FY25 performance with double-digit growth across revenue and profitability, despite seasonal variations and international business challenges. The company is aggressively pursuing a hub-and-spoke expansion strategy, targeting 1,000 additional beds in the next 3.5 years, primarily through internal accruals. While international medical tourism saw a sharp decline due to geopolitical tensions, domestic demand and the ramp-up of new facilities in Hyderabad, Bangalore, and Chennai continue to drive momentum.

Highlights

  • Revenue grew 18.5% YoY to ₹398 crores, driven by 12% growth in both IP and OP volumes.

  • EBITDA increased 14% YoY to ₹134.3 crores with a healthy margin of 33.8%.

  • PAT registered a growth of 10.2% YoY, reaching ₹68.9 crores.

  • Overall occupancy stood at 53.2%, with mature hospitals at 60.2% and new hospitals at 39.6%.

  • Management announced a target to add ~1,000 beds over the next 3.5 years.

  • International business faced significant headwinds, declining 40% YoY due to geopolitical issues in key regions.

  • Average Revenue Per Patient (ARPP) growth remained consistent between 5% to 8%.

  • Net cash position remains robust at ₹667 crores as of December 31, 2024.

Concerns

  • International Business Headwinds

Key financials

  1. Revenue ₹398 Cr +18.5%YoY
  2. EBITDA ₹134.3 Cr +14%YoY
  3. EBITDA Margin 33.8%
  4. PAT ₹68.9 Cr +10.2%YoY
  5. Occupancy Rate 53.2%
  6. Net Cash ₹667 Cr

What they filed

Q1 FY27: revenue up 22.7%, net profit up 1.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue404 382 354 335 408 +1%394 +3%408 +15%411 +23%
EBITDA143 130 111 100 141 −1%131 +1%129 +16%115 +15%
Net profit77 67 55 52 73 −5%66 −1%59 +7%53 +2%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Mature Hospitals
    60.2% Occupancy Rate9% IP Volume Growth
  • New Hospitals
    39.6% Occupancy Rate₹8.5 Cr EBITDA Drag (9M)
  • International Business
    2% Revenue Contribution-40% Revenue Decline

Guidance & targets

Capacity

  • Total Bed Additions Capacity · next 3.5 years · High confidence 1,000 beds
    We have a trajectory, which has already been discussed, of about 1,000 beds in the next 3.5 years.

    — Dr. Ramesh Kancharla, Chairman and Managing Director

  • New Bed Additions FY26 Capacity · FY26 · High confidence 250 beds
    So, in FY '25-26, we are coming with 250 of the beds, and these are all asset-light, means these are leased assets.

    — Vikas Maheshwari, Group CFO

Capex

  • Gurugram Project Capex Capex · next 3 years · Medium confidence ₹400 crores
    Now you should budget another INR400 crores in the next 3 years' time, starting from FY '25-26 to FY '27-28.

    — Vikas Maheshwari, Group CFO

Margin

  • EBITDA Margin Band Margin · FY26 · Medium confidence 31.7% - 33.7%
    However, our effort is to keep the range within plus/minus 1% of our current level... maintaining a strong margin of around 32.7%.

    — Vikas Maheshwari, Group CFO

Revenue

  • International Business Revenue Revenue · FY25 · Medium confidence ₹34 crores

    Previously ₹44 crores → ₹34 crores

    I think by the end of this year, we are expecting to close at around INR 34 crores. Last year, we did about INR 44 crores.

    — Dr. Ramesh Kancharla, Chairman and Managing Director

Risks & concerns

  • International Business Headwinds

    high

    Geopolitical issues in Bangladesh, Somalia, Sudan, and Oman have led to a 40% decline in medical tourism revenue.

    Management acknowledged

  • Increased Average Length of Stay (ALOS)

    medium

    ALOS increased by 12% due to operational delays in insurance approvals and higher case complexity, suppressing ARPOB.

    Both acknowledged

  • Project Delays

    low

    Slight delays in Coimbatore and Rajahmundry due to regulatory redesigns and vendor locations in Tier 2 cities.

    Management acknowledged

Areas of evasion (1)

  • Specific outlook for FY26 occupancy and ARPOB was deferred to the next call.

Q&A highlights

2 direct
ARPOB vs ARPP Metrics Direct
ARPOB is a somewhat complex subject because it has two key variables: Seasonality and ALOS. If ALOS increases, ARPOB gets suppressed... That’s why we are guiding and requesting all analysts and investors to focus on our ARPP growth instead.

Clarifies that management views Average Revenue Per Patient (ARPP) as a more reliable indicator of pricing power and case complexity than ARPOB, which is distorted by length of stay.

Asked by Alankar Garude, Kotak Institutional Equities

Gurugram Capex and ROCE Impact Partial
This facility will be slightly different as it is a heavy-asset model... the projected cost per bed stands at approximately INR 1.5 crores... Any large capacity addition, by nature and arithmetically, will impact ROCE.

Highlights the shift to a more capital-intensive model for the NCR region and the inevitable short-term pressure on Return on Capital Employed (ROCE).

Asked by Pritesh, Lucky Securities

Asset-Light vs Asset-Heavy Strategy Direct
For a Rainbow operating model, ultralight may not be suitable... 50 beds is the minimum. Around 35,000 to 40,000 square feet is the lowest space requirement... Going ultra-small means actually compromising some of our offerings.

Management rejects the 'ultra-asset-light' model used by some specialty clinics, emphasizing that their comprehensive pediatric/maternity model requires significant scale to be effective.

Asked by R Sen, MAS Capital

2 min read 5 chapters

Detailed narrative

Robust Domestic Growth Offsets International Headwinds

Rainbow reported a strong 18.5% YoY revenue growth for Q3 FY25, reaching ₹398 crores. This was underpinned by a 12% increase in both inpatient and outpatient volumes. While the international business segment saw a sharp 40% decline due to geopolitical instability in regions like Bangladesh and Somalia, the domestic business remained resilient. Management has revised the FY25 international revenue target down to ₹34 crores from ₹44 crores last year, but remains optimistic about long-term medical tourism potential once new markets like the Philippines and Uganda are explored.

Aggressive Capacity Expansion Roadmap

The company is on track to add approximately 1,000 beds over the next 3.5 years. In FY26 alone, Rainbow plans to add 250 beds across three new hospitals, which are expected to be asset-light leased facilities with a capex of ₹60-65 lakh per bed. The Rajahmundry hub (100 beds) is nearing completion for a May 2025 launch, while spoke hospitals in Electronic City and Hennur are slated for Q2 FY26. This expansion is expected to drive a 12.5% to 13% capacity increase in the next financial year.

Strategic Shift in NCR: The Gurugram Project

Rainbow is transitioning to an asset-heavy model for its entry into the Delhi-NCR region. The Gurugram project involves two land parcels in Sectors 56 and 44, with construction expected to start in 4-6 weeks. The company has already invested ₹180-190 crores in land and expects to spend another ₹400 crores over the next three years. This results in a significantly higher capex of ₹1.5 crores per bed, which management justifies as necessary for a state-of-the-art super-specialty facility aimed at serving North India and international patients.

Operational Metrics: Focus on ARPP over ARPOB

Management highlighted a shift in internal focus from ARPOB to Average Revenue Per Patient (ARPP) due to the volatility of Average Length of Stay (ALOS). ALOS increased by 12% this quarter, partly due to insurance approval delays and higher case complexity, which naturally suppresses ARPOB. ARPP has shown consistent growth of 5% to 8%, reflecting better pricing power and a shift toward more complex clinical cases. Mature hospitals continue to maintain healthy occupancy levels above 60%, with a theoretical peak identified at 68-70%.

Margin Resilience Amidst Expansion Drag

Despite the inherent drag from three new hospitals launched in early 2024, Rainbow maintained a strong EBITDA margin of 33.8% in Q3. The EBITDA drag from new units was approximately ₹8-9 crores for the first nine months of FY25. Management guided for a stable EBITDA margin band within +/- 1% of the current 32.7% level as they balance the ramp-up of existing new units with the initial costs of upcoming facilities. One-off expenses of ₹7 crores related to silver jubilee celebrations also impacted 9M margins slightly.

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