Rainbow Children's Medicare, a multi-speciality paediatric, obstetrics and gynaecology hospital chain in India, made a lacklustre debut on the stock exchanges on May 10. The stock listed at Rs 510 per share on the National Stock Exchange which represents a discount of six percent to the issue price of Rs 542. The listing price on the BSE was Rs 506.
Prior to the listing, experts were positive about the IPO and had given a ‘subscribe’ rating to the issue. However, prevailing volatility and negative sentiments fuelled by the geo-political crisis and interest rate hikes impacted the debut and the stock failed to live up to expectations.
The company had mopped up Rs 1,581 crore through the public issue at the upper end of the price band of the IPO which comprised a fresh issue of shares aggregating to Rs 280 crore and an offer-for-sale (OFS) of up to 2.4 crore shares by promoters and investors.
Of the net fresh issue proceeds, Rainbow intends to spend Rs 40 crore to redeem its non convertible debentures, and Rs 170 crore to set up hospitals and purchase medical equipment. The OFS money will go to the selling shareholders.
What should investors do now?
Experts are of the opinion that the stock listed at a discount chiefly due to external factors impacting equity markets and the scrip still retains its strong fundamentals. From a long term perspective, experts are confident.
“The company’s muted listing can be attributed to volatile and negative market sentiments and a lack of investor interest in the hospital businesses,” said Santosh Meena, head of research at Swastika Investmart. “The company has a specialised business, an experienced management team, proven ability to attract, train and retain high-calibre medical professionals, but the hospital is a highly competitive business and normalisation of profitability after COVID makes it suitable only for aggressive investors for the long term.”
His advice to investors who had applied for listing gains is that they should maintain a stop loss at Rs 500 and try to exit the stock on any rise.
According to ICICI Direct Research, the target market is expected to grow at a compound annual rate of 14 percent till FY26. However, the key for Rainbow would be sustained current growth amid increased consolidation in healthcare space and margin profile.
There are certain inherent risks to the business as the firm depends on its ability to attract and retain medical professionals and hinges on Hyderabad, Bengaluru, and secondary paediatric care services.
“The investors should consider holding the stock from a long term perspective as the valuation of the company (43 times P/E) is significantly lower than its peers Apollo hospital and Fortis healthcare which are trading at P/E of 63 and 53 times respectively,” said Saurabh Joshi, research analyst at Marwadi Financial Services.
Astha Jain, senior research analyst at Hem Securities, said, “Those who got allotment can hold for long term as Rainbow being leading paediatric multi-specialty healthcare chain with strong clinical expertise in managing complex diseases follows hub-and-spoke model that provides synergies...”
For traders, Indian markets have turned dicey in last few trading sessions in sync with global markets. “The market sentiments have also become cautious hence traders should garner listing day profits,” said Harshad D Gadekar, fundamental research analyst at GEPL Capital.
He feels that the hub and spoke model of the company could be a game changer as it will enable asset light operations. “Investor can hold the shares as an investment,” said Gadekar.
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