Rainbow Children's Medicare Limited (RAINBOW.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Rainbow Children's Medicare Q1 FY '26 Earnings Conference Call hosted by IIFL Capital Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jeewani from IIFL Capital Services Limited. Thank you, and over to you, sir.

Hi. Good morning, everyone. This is Rahul from IIFL Institutional Equities. I welcome you all to the first quarter earnings conference call of Rainbow Hospitals being hosted by IIFL. From Rainbow, we have with us today, Dr. Ramesh Kancharla, Chairman and Managing Director; Mr. Vikas Maheshwari, Group CFO; and Mr. Saurabh Bhandari, Head of Investor Relations. Over to you, sir, for your opening comments.

Thank you, Rahul. So good morning, everyone. Thank you for joining us today. We have entered a new financial year with a continued commitment to our long-term vision to deliver high-quality pediatric and perinatal care across the geographies, we are scalable, effective and deeply specialized network. Let me start with a few key strategic and operational updates for the quarter. Despite Q1 being a seasonally softer, especially in the general pediatric outpatient as well as inpatient volumes, we have delivered a steady financial performance. This growth was supported by strong momentum in the new hospitals and consistent demand for advanced services like pediatric specialty, multi-specialties and quaternary care. The revenue registered a growth of 7% amounting to INR 353 crores, EBITDA increased by 11% to INR 103.6 crores, while PAT registered a growth of 35% to INR 53.8 crores. The overall occupancy rate for the quarter was 40.2%. The newer hospitals added in the last 2 years are contributing in line with our expectations. During this quarter, we have achieved a significant milestone by entering Warangal, a Tri-City with a population of 1.1 million with a catchment area of 3 million through the acquisition of 76% majority stake in Prashanthi Hospital Warangal. This is a strategic move as we expand into Tier 2 cities with access to high-quality pediatric care limited. Warangal with now function as I spoke to our Hyderabad hub other strengthening our hub and spoke model in Telangana. We are excited about this opportunity and value it can create -- it can add to a long-term growth. Let's talk about projects. Our project pipeline is pretty well intact, where we continue to maintain our disciplined execution. Our regional hub hospital in Rajahmundry of 100 bed is completed and are waiting for the final permissions to commence operations from government. In Bengaluru, the construction continues at this pace at Electronic City of 90 beds and the Hennur with 60 beds, both projects are on track to become operational by the end of the Q2 FY '26. At Coimbatore the project work for 130 beds hospital is in progress. In the national capital region, the exploration work is progressing quite well at both sectors, Sector 44, which is for 325 beds, on Sector 56 for 125 beds capacity in Gurugram. We are in advanced discussions to finalize an asset-light build-to-suit greenfield hospital in Pune with 150 bed capacity. This calibrated approach reflects our ambition to scale bed capacity responsibly in existing cities as well as new geographies. While challenges continue to persist international business due to higher tighter regulations in markets like Bangladesh, Oman and Sudan, we're actively monitoring the situation, adapting to our strategies to focus on other countries. So clinically, we are very encouraged to see continued growth in the pediatric specialties, quaternary care, including organ transplantation. These services continue to be strong drivers of case mix enhancement and the revenue contribution. We are also pleased to see the steady ramp-up in our newer hospitals, confirming both the scalability of our model and the operational capability of our teams on the ground. I would like to take a moment to highlight 2 remarkable achievements that underscore the strength and the expertise within the Rainbow Group. And inspiring patient outcome from our Bengaluru Bone Marrow Transplant Unit, a 15-year-old girl from Iraq with a sickle beta-thalassemia, a complex and debilitating conditions since infancy was going through a miserable complications like sickle cell crisis, a vascular necrosis of the hip joints and multiple transfusions. She underwent a life-saving bone marrow transplantation with the donor being the sibling. Despite facing a rare serious post transplant complications because of the blood group incompatibility, our team managed these complications with exceptional skill and care, resulting in a successful outcome that truly reflects our multidisciplinary approach. In another breakthrough milestone, Dr. Nageswara Rao Koneti, director of our pediatric heart institute was granted U.S. FDA patent for discovering the innovative multifunctional cardiac device named KONAR-MF Occluder. This device is used to close the ventricular septal defects in the bottom of the chambers of heart and several other cardiac conditions like aortopulmonary windows and the patent ductus arteriosus and other fistula within the heart. So far, it's been used successfully in about 18,000 patients across 90 countries. These achievements clearly demonstrate that our clinical capabilities and the dedication of our teams, reinforcing our position at the forefront of pediatric and prenatal health care in India. Looking ahead, our priorities are very clear, ensuring the timely commissioning of the project of Rajahmundry and also 2 spoke hospitals in Bengaluru in this year, deepening clinical capabilities by strengthening our strength of excellences. Strengthening our sales and marketing function by bringing in experienced leaders and expanding the teams across key markets to deliver sustainable and scalable growth and also to support the future growth through inorganic acquisition -- inorganic mode as well as greenfield and brownfield opportunities. I want to take this opportunity to thank our medical teams and leadership teams for their dedication and the hard work. We are grateful in our -- grateful to our stakeholders for their continued trust in building this much needed health care for women and children. And I'm confident of creating a significant value to our shareholders. With that, I now hand over to Group CFO, Mr. Vikas Maheshwari to take you through the financial details for the quarter.

Thank you, sir. A very good morning to all of you, and thank you for attending this investors conference call. I'm pleased to brief you on financial performance and key developments of Rainbow Hospitals for the first quarter, FY '25, '26. Our operating revenue for the quarter stood at INR 353 crores, reflecting a growth of 7% when compared to a corresponding quarter of the previous financial year. Our EBITDA for the quarter stood at INR 103.6 crores marking an 11% growth compared to the same period last year. The EBITDA margin for the current quarter is 29.4%, which is an improvement of close to 1% from Q1 FY '25 due to effective cost discipline. The profit after tax for the quarter is INR 53.8 crores, marking a growth of 35% in comparison to corresponding quarter of the last financial year. I'm happy to share that Prashanthi Hospital, Warangal has been seamlessly integrated with Rainbow Hospitals, all systems, including our IT, which is HIS, SAP and HRMS have been integrated to the Rainbow network. In terms of operational performance, outpatient volumes for the quarter witnessed a growth of 6%, while inpatient and the deliveries do grew by 1% and 2%, respectively, when compared to corresponding period of last year. For the quarter, our payer mix continued to remain steady and balanced with close to 52% of the revenue coming from the insurance and the balance, 48% coming from the cash patients. I am pleased to inform that our company balance sheet remains robust with net cash position of INR 735 crores as of 30th June 2025 and will support our ongoing capital expenditure plan. Given our current cash and anticipated internal accruals in the coming years, we remain confident in our ability to complete all planned capital expenditures through internal accruals without any debt financing. During the quarter, the company has invested approximately INR 41.5 crores in the capital expenditure. I am happy to share that we successfully concluded the AGM on 5th of July 2025 and the dividend to all the eligible shareholders has been credited on the same day. With these insights, I conclude my financial update. I now invite questions and suggestions from the participants. Thank you very much.

[Operator Instructions] The first question is from the line of Damayanti Kerai from HSBC.

Sir, can you talk a bit more about the newer market where you're planning to enter? So Pune and Warangal, which you mentioned. So just in terms of the market opportunities, whether we should look at these newer market more similar to what you see in the Hyderabad market? Or these will be more like Chennai or Bengaluru market? So a bit more color on that would be helpful.

Yes. See, we have a very clear approach to that now. While we continue to add beds in Hyderabad, Bangalore and Chennai and Andhra Pradesh, we look for the newer geographies. Newer geographies, one, which is we are already kind of commenced our work in national capital regions, though we have a hospital in South Delhi, the managed beds, the NCR is of the new geography for us. Another new geographies which we are kind of exploring is, one is the Northeast. Another one is now recently, we're exploring opportunity in Pune. So when you look at the overall of the pediatrics as a children's hospital and the cities which where I think we can really do well is that wherever there is IT and also jobs for end people, that's where our -- the market is the large opportunity for us to do it, which is obviously in NCR and also the Pune being other city apart from Hyderabad and Bangalore, we see it as a significant opportunity for us to build up a larger health care model for children and also integrating a prenatal services within the hospital.

Okay. So Pune, you said you are in advanced discussion. When this discussion will likely result in concluding the project?

Yes, we have agreed commercials and all those things before signing. I think almost legal is concluded, and I think we're just going to go ahead very -- in a couple of weeks' time to do the signing.

Okay. So this year, it's most likely you'll see the Pune project to go ahead?

Yes. It would take about 2.5 years' time to commence the operations.

My next question is on your -- the newer hospitals where you mentioned pickup is broadly in line with expectations. So just specifically on Sarjapur and Anna Nagar, if you can share whether these are nearing cost breakeven or it will take some more time?

Sarjapur is breakeven and Anna Nagar is close to it. It will probably take another 6 months' time. During this current season, we should do it.

Okay. And my last question is, in the previous call, I guess you mentioned ARPP will be the better metric to look at the operational performance, but you haven't shared it. Maybe if you can share that on a regular basis in your presentation, that will be helpful. Well, you mentioned ARPOB might not be the right metric to really look at your business. But for this quarter, if you can just -- if you can just share how things have moved in terms of ARPP metrics?

Damayanti, Vikas Maheshwari, this side. Actually, it is a derivative. So ARPOB multiplied by ALOS if you do, probably will get it. But this is a good suggestion we will publish the ARPP now going forward, we'll do this. So ARPP or year-on-year basis has increased by roughly 3%. So the trajectory which we have told the ARPP, which is on the increasing trend. And then we have seen 6% to 7% growth over a period of time. I think we are on the same trajectory, 1 or 2 quarters here and there, but the trajectory should be the same.

So broadly 6% to 7% growth is a normal range, maybe the 3% number which you mentioned for 1Q, is because this is a seasonally low quarter?

Yes, yes. We can attribute this to that.

The next question is from the line of Amit Agicha from HG Hawa.

My question is only connected to doctor engagement, could you elaborate on the retention strategy for full-time doctors, especially in Tier 2 cities? And what percentage of your doctors are on retailer model versus revenue share, like the basic category, with such a high training output? Like are you able to absorb trained doctors into your system effectively?

Yes. So we've been actually, one of the main thing for us is our doctor engagement model. So we look at 2 different kind of doctors. In the pediatric scenario, you don't see many [indiscernible] doctors, which we normally go after and those things. We look at the qualified and skill set, doctors with the skill set. So you invest on them. The first 2, 3 years’ time, there will be retainers. Once kind of they start doing very well, they will get a variable fee. That's how we have been operating and across all the geographies. So it's been pretty stable and successful. So retention is, I think once the doctors are settled down, start doing very well and making their variable fees, they will continue to kind of be there because one of the reasons is that while stickability to the doctors to our model is that -- so it's a medical hospital. It's more of service delivery. The doctor requires much more of support from the hospitals and other colleague systems. So therefore, it's not an individual driving it. It's combinedly, a kind of a team is driving it. So which is why the stickiness of doctors to Rainbow model is very good. It's more institutional model.

Any percentage-wise, can you give like retainer model as a revenue share?

Sorry? The majority of the people, this is why I'm saying, they're all in the kind of various stages. As the hospital is maturing, then we'll put them on to the kind of a revenue share model. So that makes them happy in growing both clinically as well as financially. So for example, most of the Hyderabad doctors are revenue share model now. And Bangalore also significantly on the revenue share model. And Chennai is still on the retainer model, but it's still an early phase for them. So this is how it works.

[Operator Instructions] The next question is from the line of Anshul Agrawal from Emkay.

My first question is on the mature hospitals. Any comment on why volume growth has been -- volumes have been muted for this portfolio?

Yes. So Anshul, so we have been -- we have seen this in the last quarter also, Q4 and Q1. Definitely, they are kind of both seasonally were quite kind of muted, the current year. I mean I don't think we've explored it in detail and depth. I don't see any specific reasons for this. I think it's just generally a kind of -- it's a very healthy period what we have witnessed, and whatever the patients are coming, they're only coming for kind of a vaccination or some specialty care, it's more of a nutrition advisers. So there's no kind of a disease or something significant for the last 4, 5 months -- 5, 6 months' time. That's what we have witnessed. The volumes-wise, when you look at it, the pediatric volumes significantly are significant further for the occupancies, which is why you see the kind of -- the occupancies are plateaued some kind of -- some degrowth compared to the year-on-year side. So I'm sure once these are all things which kind of -- which are beyond our control. And I don't see any reasons particularly for the degrowth for any other reasons like cannibalism or competition or all those things. So we're pretty confident that we'll come back when once kind of thing start settling up and operating side, absolutely, we're on top of the things.

Sure. A follow-up on this, sir. So our surgical mix would have actually deteriorated in the current quarter. And so what would explain the jump in ARPOB or ARPPs, given that surgical mix would have actually reduced?

So Anshul, let me add here until doctor comes here. See, in the case of matured hospital, overall, the revenue grew by 2%, okay? What has come down is the seasonal low value, which is a high number of the footfall, et cetera, those has been not there. So our critical care, that continues to remain robust. That is why you are seeing -- once the low ticket pediatrics are not there, so high-quality business remain intact, that had grew. That is why you are seeing the ARPOB growth basically. Or if you look at ARPP also, it grew, right? So that remains constant. So overall revenue grew by 2%. The only thing which was that seasonally, which was icing on the cake, it should have been, that is what is missing.

No, the surgical mix, Anshul, I think is not lower. I think the surgical mix was pretty good actually, last 4, 5 months' time, so kind of our surgical numbers are pretty good. So that is one of the reasons to kind of have a lower ALOS because most of the surgeries are done for children are minimal access surgery. So that you see it's 2, 3 important things. pediatric specialties and quaternary care and pediatric surgical, these are the ones which reduces the ALOS and gives you better ARPOB. So in the absence of a seasonal business, obviously, that's what you see a 13% growth in ARPOB.

So there has been no price hikes in the insurance compartment or cash tariff at all, this is purely pediatric...

For this year, not yet. We are expecting these things to close probably at least for the Hyderabad and Bangalore and Chennai. We're expecting this to happen sometime this year, probably in the next couple of months' time.

And any update on the IVF business vertical? How is it faring, have you added IVF vertical in any newer hospitals?

No, I think the same, we have got the 12 centers. Most of them are within our main hospitals. The growth is pretty impressive, and we are probably kind of heading towards kind of doing 2,000 cycles by the end of the year. And however, revenue grew, year-on-year by 50%. So that's pretty impressive.

Just one last question. We'll be maintaining our mid-teens revenue guidance for the next couple of years? Or we'll see any upward plans for this, given the fact that they're adding hospital beds aggressively?

I think we are adding beds now because we've just done an acquisition and also we kind of almost 250 beds in pipeline to come into operations in the next 2 to 3 months' time. So these almost about 250 plus 100, 350 beds are going to be added and also kind of a possible case from acquisitions, and they're all around. So there are enough number of beds that are going to add this year. And the -- we would expect our kind of -- that's for the guidance, which we have done about -- I mean, late teens to 20% is the growth which we are anticipating. So still 3 more quarters are there. I think we are pretty positive about it.

The next question is from the line of Rahul Jeewani from IIFL Capital Services Limited.

Sir, on this Pune greenfield hospital, which we have, let's say, focused on now, what led to you deciding Pune as a market within the West India market? So can you talk about in terms of the market potential within Pune and are you choosing Pune for your West India foray?

So Pune, it's geographically, Pune adds to kind of extension of Hyderabad, number one, towards the West. And also it has got a good draining and catchment areas, Pune. And we do get patients right from Solapur and also the Parbhani districts and those things. So this will become a kind of a natural extension of Deccan Plateau. So that's -- and also, it is -- Pune is people's city. So there a lot of IT, ITES is there significantly. The significant insurance penetration is there. And also other things, though there is a competition there in the maternity side. But when there is a kind of a lot of population and maternity care is there and definitely, you require the advanced pediatric capabilities also. I see Pune as a kind of a long-term good addition to the Rainbow forte. But Pune gives you an opportunity to do a small hub and spoke as well because it is a fairly large city and also expanding pretty well.

Sure, sir. And sir, what kind of CapEx would we be incurring for this 150-bed greenfield hospital?

So the -- it's going to be built a greenfield hospital and the base building will be given to us. And I think a basis on what we have agreed with them is probably about -- I mean, some where -- it will be well under INR 1 crore, but still yet to kind of clearly see that what the cost per bed is going to be. I would expect it to be somewhere around INR 80 lakhs per bed.

Okay. So largely in line with what we have done for our asset-light hospitals previously?

Absolutely, yes.

Sure, sir. And sir, second question on while the IP volumes were impacted because of seasonality, what we see is that the delivery volumes were also muted this quarter. So a 2% Y-o-Y decline. So what led to, let's say, this muted or sluggishness in terms of the delivery volumes?

Well, we're not really sure about it. We've been actually looking at it, all the data and various things. I mean the -- sometimes what happens is your previous year wedding times corresponds to the kind of deliveries also. That's one of the things. And also, what we have seen is that when you look at the other peer groups, for example, in Hyderabad, so there's a large competitor. There are 2 groups which has the maximum deliveries. One is Rainbow, another one is Fernandez. So when you look at them, they are also kind of slightly muted, about 2%, 3% muted overall in the last quarter. So there was some slump in the deliveries, seeing in -- we do kind of seen in Bangalore also, the similar phenomena and Chennai as well. So I think that there are no strong reasons, just maybe a kind of whatever it is of wedding seasons and correspondingly, those things just been kind of one of those situations. But I don't see any particular reasons that the drop in deliveries is because of any significant factor.

And this, let's say, what this muted growth in delivery, was it across clusters or was specific to certain clusters?

No. We have seen this actually in the larger hub hospitals, which obviously there are more competition around. And the micro market hospitals, which have been done over in the last 2, 3 years' time, they are fairly good because the new hospitals, their growth opportunity is pretty good. So it is nearly seen mostly in areas where there is -- your hospitals are there in the competitive zones and those things. But everybody takes a bit of share and also that deliveries is kind of -- no one is doing a big numbers. So -- but having said that, we were there in this busy season, I mean this kind of these parts of the cities across in the 3 cities, but we have not witnessed this particular phenomena in the past. We are exploring more deep into that and see that how do we build our deliveries and volumes. Maybe I think we need to kind of get on a lot more marketing and other initiatives to kind of include younger population and also drive conceptually about our focus on natural birthing and those things. We need to reemit ourselves to get back into the double-digit growth.

Sure, sir. And sir, on the inorganic opportunity, Northeast is what you are evaluating and let's say, with the entry into the Pune market, would you be evaluating inorganic opportunities in other, let's say, Tier 2, Tier 3 markets in Maharashtra as well?

Well, I think it is -- if there are any suitable which actually for us to do such things, I'm sure we will look at it. I mean, suitable in a sense for us whether these hospitals are built with quality and also have got accreditations and also have got a long-term vision where we can build a scale and philosophy in those hospitals certainly.

And sir, can you update us on the opportunity which you were evaluating in Northeast?

Yes. We will probably come back to you very soon on that, I will give you more details on that. It's premature...

Okay. Sure, sir. And sir, just one request from me here, given that our business is slightly seasonal in nature and you talked about the fact that the general pediatrics business is what was impacted and tertiary and quaternary care where you continue to see healthy growth. So if you can, going forward, split the business in terms of these different segmental, so that will help us to better track the operating metrics in terms of how some of these dynamics are playing. So yes, I would request if you can share that data going forward?

See, Rahul, one of the problems with this is that the children's health care is a very medical business. And also, we work in teams, right? And also, we work -- the child gets admitted in one department, gets different surrogates across 2 other departments. It's very difficult to kind of segmentalize the departmental wise in those things. Most of them child comes to us as a sick child. We only discover that what the child has got a problem and also deposit them on a particular specialty or what intensive care specialty problem on those things. It is actually pretty complex actually dividing to show that the segmental businesses of pediatric business. So I mean, let's see, we'll try, and I'm not very sure how we can present it meaningfully.

If not that way, maybe the split of the business between seasonal and nonseasonal, obviously, there also you would have to take your judgment. But yes, even that will be helpful.

The next question is from the line of Naveen Baid from Nuvama Asset Management.

I'm not sure if this has been answered before. But if I look at your mature hospitals despite poor inpatient volume, what kind of explains the sharp rise in ARPOB, especially in the mature hospitals? Just a mix as Rahul was referring to.

Yes. What happens in the Q4 and especially in Q1. So generally, it's a holiday season, right? Most of the people goes on holidays out of the countries. The summer cities like Bangalore and Hyderabad, IT zones get vacated by 40% to 50%. So -- but what remains intact is that the pediatric surgeries, pediatric surgeries or specialty pediatric surgeries like urologists or neurosurgeries or whether it is ENT surgeries, they all get done in the summer season because that's a preferred time for the parents to come and get the surgeries done. So we do put large volumes of surgical work in these periods because people have done -- tendencies to get them done in the holiday season and also healthy season. So these are 2 things which actually spikes your surgical numbers. And along with the surgical numbers, at the same time, all the other surgical things also, cardiac also goes up that time. Even the people prefer to do more transplants and other work also, they are elective ones during this season because it's kind of a quieter season, less infectious environment. So people want to do those things. So generally, in the Q1, you do a high-quality business, the lower volumes, but the case mix is much more superior, which is why you see ARPOBs are definitely higher.