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

Ladies and gentlemen, good day, and welcome to the Rainbow Children's Medicare Limited Q2 FY '26 Earnings Conference Call hosted by IIFL Services Limited. [Operator Instructions] I now hand the conference over to Mr. Rahul Jeewani. Thank you, and over to you, sir.

Hi. Good morning, everyone. This is Rahul from IIFL Capital. I welcome you all to the second quarter earnings conference call for into 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, and thank you for joining us for Rainbow Children's Medicare Limited earnings call for the Q2 FY 2016 and first half of the year. So I would like to start with the few key strategic and operational updates for the quarter. During the quarter, operational performance showed some softness largely influenced by a low incidence of seasonal is resulting in lower patient volumes in general periodics and also peritensive care. In addition, early festive seasons like Planet and Subsea compressed the typical period for our missions. These factors collectively led to lower occupancy levels and a transient impact on the financial performance. However, the underlying business fundamentals remain strong. with the continued growth in Specialty Services, disciplined cost management and steady progress in operational efficiency. However, these challenges are temporary and we expect normalization in upcoming quarters. I'm pleased to inform you that the acquisition of Prashanthi Hospital in Warangal state and the Pratiksha Hospital in Guwahati making Rainbow a strategic entry into the Northeast region. Both hospitals are now being fully integrated into our Rainbow network. Our initial traction has been encouraging. and in line with our expectations. Further, we commissioned our new host in Rajahmundry 100 beds in the East [indiscernible] District of Andhra Pradesh. Having the regional hubs in [indiscernible] Pagani and Vijaya will cover most of the affluent parts of Andhra Pradesh. We are now gearing up for the upcoming commencement of 2 hospitals in Bangalore Electronic City and the handover branches, further expanding our penetration in this key metropolitan city. With these additional Rainbow Children's Medical Limited will conclude its current high bet addition, having added 780 beds over the past 2 years' time to expansion as well as our position. To dwell on the financials for Q3 FY '26, the revenue registered a growth of 6.5%, amounting to INR 445 crores, EBITDA increased by 1% to INR 149 crores, while the PAT was degrown by 4%, registering INR 76 crores. The overall occupancy rate for the quarter was 52%. I would like to say the project update. The Electronic city in Bangalore of 90 beds is fully ready for clinical commencement waiting for the government approvals. The Hennur facility of 60 beds is in the final stages of conclusion and is expected to come on operations by January '26. The regional hub hospital Coimbatore is in the project phase now and is expected to ready by the end of the FY '27. In Gurugram, construction work was progressing rapidly at both 44 and Sector 56. But the work has been started by the government temporarily because of a dangerous pollution in Delhi NCR. We have signed up for a 150-bed hospital in Pune on Bangalore and is currently in design phase while waiting for the permissions. I'm pleased to announce the appointment of Mr. Abrarali Dalal as a Group Chief Executive Officer for Rainbow Children's Medicare Limited effective from January 2, '26. This appointment marks an important milestone as we fortify the leadership team to drive the next phase of growth and strengthening our business operations. Our international business, though some of the issues regarding the medical research persisting, we have seen some progress on international business front with a monthly revenue tracking INR 3 crore. We see the business returning to normalcy in the coming quarters. Clinically, we continue to do very well in our pediatric specialties and quarterly care with the improved case mix and the revenue contributions. I would like to share one of our remarkable clinical outbound during this quarter. We 27-year-old expectant mother with the underlying complex cyanotic congenital heart disease areas single ventricle, underwent shunt surgery called the Glenn procedure to improve her oxidation and quality of life during her early childhood. Though the definite to procedure was planned, the family never turned up to the hospital because of a decent quality of life. She got married and planned for pregnancy, Unfortunately, she lost 3 pregnancies in a sixth and seventh-month onto pregnancies because of intra [indiscernible] babies. [indiscernible] cardiac conditions, which are misdiagnosed and neglected would end up in having significant problems in the early health and [indiscernible] hours. This group of conditions usually called as a batch, which have grown up with the congenital heart diseases. These transitions are best dealt by the prearrange cardiac surgeons. Here this lady has come to us to Rainbow Children's Hospital with a hope to save her baby for a current pregnancy. During their evaluation, she was formed to have oxygen saturations of around 75. This clearly indicates that continuation of her pregnancy may result in [indiscernible] and death of the baby because of poor oxygen saturation. Scientifically, this could have happened in the previous pregnancies resulting in entities. Since any surgical options carry high risk of maternal and fetal mortality, our cardiac and perinatal team had an extensive deliberations and also finally -- and finally decided to rescue the baby to noninvasive procedures. The periodic cardiac team planned innovative procedure first of its kind, doing were through heart cauterization, placing a trend from the single ventricle through the [indiscernible], which is actually an all perhaps malform into the pulmonary artery. This was the plan. This plan was executed meticulously and post procedure success will proceed at the oxygen saturation has gone up from 75% to 94%. The mother's cardiac assessment post the cesarean extremely satisfactory, and the fetal viability was good. This pregnancy has followed up very carefully by the cardiac assessor prenatal teams and that successfully delivered at a full turn healthy baby. I was so excited and went down to the teams to celebrate the success. Looking forward -- looking ahead, for the second half of FY '26. And so the timely commission of our 2 spoke units in Bangalore, focus on strengthening business operations delivering sustainable growth across its network, strengthening our sales and marketing functions across the 2 markets deliver sustainable growth. So let me take this opportunity to thank our medical teams and also leadership teams for their dedication and hard work. We are grateful to our stakeholders for their continued trust in building this incredible health care for children and perinatal services. With that, I now hand over the mic to our group CFO, Mr. Vikas Maheshwari to take you through the financial details for the quarter. Thank you.

Thank you, sir. A very good morning to all of you, and thank you for attending this investor conference. I'm pleased to brief you on the financial performance and the key developments of Rainbow Hospital for the second quarter and the first of FY '25, '26. Our operating revenue for the quarter stood at INR 445 crores, reflecting a growth of 6.5% when compared to the corresponding quarter of the previous financial year. For H1, our revenue stood at INR 798 crores, reflecting a growth of 6.7% when compared to H1 of the previous financial year. Our EBITDA for the second quarter amounted to INR 149 crores, marking a muted growth compared to the same period last year. For the H1 EBITDA stood at INR 53 crores is reflecting a growth of 5% when compared to the edge of the previous financial year. The EBITDA margin for the current quarter is at 33.5% while our H1, our EBITDA margin is 31.7%. The profit after tax for the quarter is INR 75.6 crores, which is marginally lower than the last financial year. For the H1, our PAT stood at close to INR 130 crores, reflecting a growth of 9% when compared to the edge of the previous financial year. In terms of the operational performance, outpatient volumes witnessed a growth of 5.7% when compared to the corresponding quarter in the last financial year. The deliveries grew by 6.8% compared to the corresponding period of the last year. Inpatient volumes witnessed steady volumes when compared to the corresponding periods in the last financial year due to the reasons outlined by [indiscernible] earlier. Our payer mix continued to remain robust with the balance with -- and balanced with 53% of the revenue coming from the insurance and the balance, 47% coming from the cash patients. For the H1, the payer mix stands at 48% with cash and 52% with insurance. I'm pleased to inform that the company's balances remains very strong. with a net cash position of INR 4,556 crores as of 30th September of this year 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 the planned CapEx expenditures through internal accruals without any debt financing. During the quarter, the company invested close to INR 261 crores in the capital expenditures towards expanding and enhancing our services at existing and upcoming hospitals, and that includes the acquisition of the Guwahati and the Warangal hospitals. With these insights, I conclude my financial update. I'll now invite questions from the participants. Thank you very much.

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

My first question is for Dr. Ramesh. With the appointment of CEO, how your environment or how your role will change in the company?

Yes, Damayanti, I've been the front line for a long, long time. And also the time has come that there is a professional management of company, we are expanding significantly and also that multicity. And it's important that of course, I'm here as the Chairman aligning with [indiscernible] and the [indiscernible] team. And they obviously professional severed definitely be much needed for the organization of this size. to agile operations to kind of side the fit director cofund functional heads a professional job. I think it's very, very important to have a proper Chief Executive Officer, who is [indiscernible] significant experience and drive independently of the operations panel for the organization. So that's why we've done extensive deliberations and introduce and then finally, we chose to have Mr. [indiscernible] as a CEO.

Okay. So obviously, I think you will be there to hand hold and imply the role advised the company as we progress ahead. My second question is on your new units, Prashanthi and Pratiksha both integrated during second quarter, as you mentioned. So just some color on the revenue contribution, which came through these new units and your plan and expectation for giving up operations in the improvement?

Yes. So the early phase, they were being about the -- the Pratiksha was being about INR 88 crores to INR 95 crores. We've taken -- we changed over completely as a management. And also even the insurance, everything has got changed. We are applied in the process of getting all the formations. Of course, any is decent enough, but I think it will show up actually an uptick on the revenues probably well December ramps. Now we have all the permissions and all the influencing -- the same thing with [ Veeva. ] It did take some time being inside to city in all the insult. There was some decline in the deliveries and those things because of all the insurances have not turned up. So now they are all on the bold now. We expect to see a revenue doing very well in the -- we are very happy with these 2 acquisitions. Integration went very, very well. And seamlessly, both doctors as well as the staff, nursing our operating model has been institutions very well. I think of that say, we are kind of very optimistic about growth of these 2 units.

Sure. So you are largely done with integrating the entire 2 units. And maybe from March quarter, we will see a meaningful pickup in revenues. So just I think Pratiksha, you mentioned INR 8 crores, INR 8.5 crores of book, which came in 2Q.What was that about?

Yes, it's about lower than that because of the insurance system, those ones. They will see the integration was actually at the supply chain and HR and -- has a lot of things have done because -- it was a company which is operated in multiple heads because pharmacy in a different company, operations in a different company. They are -- they are operating on 3, 4 companies. So that was challenge was to integrate those things and then drive it. But our team has done a great job. I think now is completely operates like a Rainbow Children's Hospital.

Got it. That's helpful. And my last question is on your international business. Can you remind us, you mentioned there are some issues and which should be normalized in coming quarters than you take things to pick up?

Yes, still the issues remain with the validation in some of the markets like the Visa has not been not been training for the patients. So -- but the overall other areas, the African markets have become more active. So we kind of -- what we have left about 1.5 years ago, we come back to the business of INR 3 crores per month, which was a been Solenis improving month-on-month. That's what we can say now, we are hopeful that now it will come back to no it's not going to be too long time.

Okay. I'll get back in the queue and all the best.

[Operator Instructions] The next question is from the line of [ Kritika ] from Prospera Financial Solutions.

Yes. Congratulations on a strong quarter. I ask now like you have mentioned earlier that the payer mix was roughly 52% insurance and 44%in cash in Q1. Has that ratio changed meaningfully in Q2? And more importantly, where do you stand on pricing renegotiation with issuers in your key markets? Because with rising specialty case mix and inflation in chemical inputs, are you content that the price in Hyderabad, Bangalore and Chennai will come through with the time line you had guided earlier?

Yes. So the real mix for the quarter 1 and the quarter 1 is more than the same line. There is not much of the change. This is a very balanced mix which we are driving. The good part is that we don't do any government-related skin businesses since it is a pediatric to our mix is only cash and insurance. As far as the insurance renegotiations is concerned, I think our team has already concluded adapt. For the Bangalore cluster is under negotiation and is happening. So as and when -- so it is a routine business for any healthy operator, right, for the hospital company because the insurance keeps falling on some multiple time lines of the life cycle. So as and when it comes, we keep negotiating. And so far, we have been very successful in terms of the pricing and hedging against the inflation cost and the type of facility we have a bit and that type of complex what we do. We have been able to negotiate it properly with the insurance company so far. So we expect that, yes, we will be able to manage that going forward also.

And my second question is 1 of rainbow's biggest differentiator is our strength in [indiscernible] pediatric and intensive care, could you share that went utilization improved in Q2 relative to Q1? And whether that was a meaningful driver for the recovery? And do you see that NICU capacity approaching constraints in any of your hubs, which may require further expansion?

So as far as the capacity constraints of the PIC and ICA is concerned. So I think whatever the facilities we have is very well built keeping in the future requirements. So we have a headroom available in all of -- most of our hospitals to accommodate these types of patients in our NICU and GICU. So we don't see as of constraints on search capacity utilization, more were we do a [indiscernible] model. I don't think there is a problem we need we're accommodating the patients. we always try to see that in our base and when we do so, should we do the increase the beta they are the taxes. The others are just among the units between them. So that optimize is always done. I think as we move forward in future what we had in earlier the number of bets in ICOs maybe a kind of the numbers wise, we probably need to optimize a little bit down because of a number of units are distributed, we can then go attack itself because in the past, we used to think about the large -- the hospitals to have a larger unit now because there's a lot of micro market-driven business, we try to optimize number of base to either the efficiency is improved.

[Operator Instructions] The next question is from the line of Bansi Desai from JPMorgan.

First, congratulations on the CEO appointment, and we look forward to speaking with him. Sir, my first question is that if you just step back and look at the last 3 to 4 years, while Rainbow has done very well operationally, you've seen season impacting our business, probably twice in the span of last 3 to 4 years. I'm just trying to understand that is this impact felt similarly across all your units? Or is this more pronounced in 1 region over other? And the second question in continuation to that is that as we look ahead and as we diversify our presence in North and Northeast, should that, in any way, lessen the impact of seasonality that we are feeling?

Yes. See, the seasonality by and large, what we see is the southern states behave very similarly, whether it's Hyderabad or Bangalore and answer the day should be in 1 factory. Chennai may be slightly different because the level of monsoons comes a little later. But the adoptation of Hyderabad, Telangana and the Bangalore kind of follows 1 pattern. So when we look at the Northeast, Northeast for a fairly different pattern of seasonal illnesses. So I think in the north is fairly kind of -- again, the big season is always going to be October, November, December, January, because more of position driven in the in the LCR. So this is some degree of variation will be there. But South largely behaves the one-unit.

Sir, I was just saying that we've entered Northeast good pecans acquisition, but do we have plans to build up our presence there?

Yes. Firstly, we would like to kind of see that now how we build our specialty footprint there. So we already started some very interesting things in the out East. One is that we started to transport services. In the last 1.5 months, we've done about 15 road transport, which never had done -- has been done in the -- from growth-based and the Northeast. We've done far of distance in [indiscernible] and all the areas and then the transports of critical children. That's 1 thing we have done. We are adding specialty even after that we are pediatric immunologists at recent perinatal pediatric restate medicine. So I think 1 of the important is to build this as a hub hospital. That part is our focus is and we're trying to see that our low fast, we can do a clear recurring surgery in that area in our royalty hospitals. So we want to see that the base business is very good and very strong, and reposition is very good. We would like to see that discuss through periodic services to be [indiscernible] for the Northeast. Then we can look out for the spokes in the smaller cities like chain a good place and there is a Silanis a good place. There are opportunities are there. They're all very green. So we would like to strengthen our soup in the next year time we start thinking about it.

And if you could also update us on how our IVF centers are performing. It's been a year. If you could comment on how they're doing operationally and also in terms of patient volumes?

Yes. As expected, our IVF growth that's coming mostly through our own networks plus and B2C. So B2B is almost kind of close to kind of a very negligible because us feel competitive regards to send their infertile patient to rainbow, which is a strong optic network. So we have a sales team that -- see, what is working for us is that one is in-house growth, number one. Second thing is B2C, the collectively, actually, we are growing pretty impressively about the last year, the same quarter to now is about 40% growth is there. There is a low base, but we would like to see that now. We continue to grow impressively 25% in the future.

[Operator Instructions] The next question is from the line of Rahul Jeewani from IIFL Capital.

Yes. Sir, you did talk about seasonality in terms of obviously impacting our performance this quarter. Now if they look at the IP volume growth between the mature and the new hospitals, it seems that the volume the IP volumes in mature hospitals have declined high single digit kind of a number, between 8%, 9% Y-o-Y. So why is the impact of seasonality more pronounced than the mature hospitals given that for some of these mature hospitals, we would be doing other services as well, like the [ Banjada ] Hospital?

So the matured hospitals have got a standard regular business, which is about 50%. So we expect them to do in the Q2 and Q3 about, say, 60-plus percent. If you go back and see the last year, we are about 65%. So then there is that 66% the 10% growth comes from the seasonal business. So when we see our occupancies, the 10% comes from the seasonality and the revenue generation will come up 12% to 14%. So which is why we typically guide about our occupancy goes up by about 8%. Our revenue grew by 12% in the Q2 and Q3. This typically happens in most of the years, but sometimes it's cyclical. When there is no seasons, that's what exactly way of seeing it. We've seen our business -- base business is pretty good. Our EBITDA since still the robust, but your occupancies are down by and our revenue down by probably 10 potential. If there is a kind of seasonality they probably would have done about 16%, 17% of the growth. So this is exactly the clear cut. The why the mature hospital stakes because when there is no seasonality, people get attracted to come to popular hospitals in the season. So the second important thing is periodic in terms of care. When there is a seasonal and the high end, the significant number of -- some big -- I mean some portion of children become sicker because pneumonias under. Some of them becomes more sicker. They require internotes services. So these 2 plays hand-in-hand, general pediatrics and pediatric intensive care industrial less duration, which is where we have seen about 8%, 10% of the deep overall in our uses more we're seeing because the new units, that they're low base. We don't see much of a difference in the new unit because they are about the 40%, 40%, 42% businesses. So here, you see what a higher percent businesses. There is a regular fixed business is there about 50% which is pretty standard.

Sure, sir. So this to 8 to 10 percentage point occupancy contribution and 12% to 14% revenue contribution from the seasonal business, you seem to indicate that's the contribution at the mature hospital level for 2Q and 3Q generally.

Yes. That's exactly it.

Sure, sir. Sure, sir, sure. And sir, with respect to, let's say, the IVF revenue. So can you talk about in terms of some of the levers, which could help us to reduce the impact seasonality in the overall business. So obviously, North gas expansion would help. Can IVF scale up also help us in reducing the impact of seasonality? So what is our IVF revenue contribution right now? And where do you see that number settling over the next, let's say, a 3- to 5-year period?

I think about -- we come to 3.2% of total top line this year. So I mean it would go up but I'm not sure how much is going to the percentage. But overall, I think we would do about INR 40 crores as in the current year. and which is now almost 50% in the last year, year-on-year. And obviously, that your specialty growth and super specialty growth and also some of the specialized services what we do and the rare diseases -- these are all the areas we'll occupy as we kind of mature more and more as we [indiscernible].

Sure, sir. Sure, sure. And sir, the next question I have is, as you indicated that now most of our expansion plans would get completed by FY and the next round of expansions would come online in FY '29 only. So now as some of these newer hospital scale over the next 2-year period, can you see a margin expansion playing out for Rainbow over the next 2 years as some of these newer capacity scale up?

No, certainly, that I think what's more important for us is tries operations. And also, as I told in the last earnings call that now we have a leadership in sales and marketing and he's being very good. And also now the CE will join in. I think strengthening the overall leadership and also -- what we have is the next couple of years' time is a very pure player for driving the growth and driving the revenue growth. We'd like to see that. We are always tied about 25% is our base data EBITDA. We will stick to that. We'll continue to drive both top line growth.

Sure, sir. And any comments in terms of what kind of a top line growth are you looking at from a 2-year perspective?

I think that moving forward, we should do -- we have 30% growth. That's what next 2 years is, which we aim at because we have done all the expansions. We've added a plenty of bets in the growing business in the growth areas. And as long as we stabilized our mature units to kind of 8%, 10% growth, rest of them grow at about 25%. Consolidated we do 20% growth.

Sure, sir. So this 20% growth includes the contribution from M&A or you are talking about the organic growth for the business?

For to M&A. They are integrated now, so they are part of the business.

Sure, sir. Last question before I join back the queue. We continue to generate a very healthy cash right now also we have around INR 560 crore of net cash on board. So with the Gwahati and the Warangal acquisitions being done, are you looking at more M&A? Or will you slow down let's say, from a 2-year perspective, scale up these newer assets and then only evaluate fresh M&A. So any color there would be helpful, sir.

Surely, there is M&A, which are appropriate, we will definitely be kind of interested and such opportunity comes we will obviously be looking at now. There is cash on the balance sheet. We have got execution capabilities. What we look at is that M&As, which -- where we can add scale we can include them into our operating model and add the scale further, we will definitely look at that.

[Operator Instructions] The next question is the line of [ Isha ] an Individual Investor.

So I'm fairly new in analyzing the hospital industry. So sir, my first question is, how is the company able to maintain such high gross margins of 37% when the industry average was around 73%, 74%. How are you able to maintain such high gross margins? And my second... Yes, exactly. You can go ahead.

With respect to the gross margin, there is a difference in the -- our facilities and the multi-facilities, which are mostly listed. I think the pediatrics and on the maternity space, we are the only company. And in our industry, that is what is the cost of the consumables, which is between 12% to 14% depending upon mix of the services which you are providing. That is why the gross margins are higher.

Yes. See, because most of the are hospitals are surgically driven. We are medical hospital. So in medical hospital, the cost of implants and the other is much lower. And hence, you see higher gross margins.

Okay. Sure. So sir, my second question is what CapEx do we expect to incur in H2 FY '26? And that solution should we make for the hub and spoke model banking of CapEx per bed should project going forward?

I think the project which is laid out is Hendren Electronic City, which is Bangalore is happening. I think the leftover payment and the group an project, which is happening there. So I think for the same half, I think close to INR 100 crore a month should go. And for our [ Funan Combat ] project for the next 3 years, you should budget close to amount of roughly INR 600 crores.

Okay. And sir, my third question is, how do we see competition affecting the occupancy rates and especially the hub region?

So competition is obviously and also the market are also expanding it. It's our question of how do we navigate ourselves right now. keep ourselves to grow. The competitions are idea complete has been there for the last 15, 18 years' time. And that transformation competition will continue to grow. So that is the utilize. I think we just have to work around and play out those strengths and expand more micro markets and be dominant players. I think that's the only way for both.