HDFC Sec sees 10% upside potential in Rainbow Children's Medicare, here's why the optimism

Recently, leading life insurance firms also raked up their stakes in Rainbow Children's Medicare in May through investments of around Rs 161 crore.

Much like the entire hospital space, sentiment has been growing stronger by the day for Rainbow Children's Medicare. The recent addition to the list of brokerages that gave a bullish outlook for the children's hospital chain is HDFC Securities as it predicts a 10 percent upside potential for the stock.

The firm expects Rainbow Children's strong presence in southern India, aggressive expansion plans, higher occupancy and better operational performance to aid its performance in the near-future.

Baking that in, the firm believes investors can buy the stock in the range of Rs 935-955 and add more on dips to Rs 830-845, with a target price of Rs 1,042 over the next two-three quarter. The base case target price of Rs 1,042 reflects an upside potential of 10 percent while the bullish case target of Rs 1,118 shows potential for gains of over 18 percent.

"The hospital chain gradually evolved into a one-stop healthcare solution for child and mother care and is well placed in India’s pediatric and maternity healthcare market which is expected to grow at around 12-14 percent CAGR (Compounded Annual Growth Rate) over medium term," HDFC Securities highlighted in its report.

The company also follows a cost effective model and has a track record of healthy operational performance in terms of ARPOB (Average Revenue Per Occupied Bed), ALOS (Average Length of Stay) and occupancy.

Also Read: Top life insurers turn bullish on healthcare stocks; investments higher than sector weightage in Nifty 100

Furthermore, the company also plans to add 270 beds in FY24 across various geographies in Hyderabad, Bangalore and Chennai and another 160 beds in FY25. It also announced greenfield capacity addition around 400 beds in two locations with a capital expenditure of Rs 450 crore to strengthen its network in Delhi-NCR. In line with its earlier guidance, the hospital also remains on track to add 1,000 beds over the next 3-4 years.

Aside from these factors, the HDFC Securities also highlighted the company's unique doctor engagement model and ability to retain high calibre medical professionals, an ecosystem which integrates pediatric to perinatal services and its strong brand as other key upside catalysts.

On top of that, the company's stellar earnings performance in the recent quarters fuel further optimism for the stock.

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Moreover, its not just HDFC Securities that it bullish on Rainbow Children's Medicare. Recently, leading life insurance firms also raked up their stakes in Rainbow Children's Medicare in May. As per Nuvama Alternative & Quantitative Research's Insurance Portfolio Analyser, the stock was among the top additions by four prominent insurance houses, which cumulatively bought stake worth Rs 161 crore in May.

The growing optimism for the company has also reflected in its stock performance as the scrip has gained nearly 30 percent in the past three months.

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