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

Ladies and gentlemen, good day, and welcome to the Rainbow Hospitals Q3 FY '26 Earnings Conference Call hosted by IIFL Capital. [Operator Instructions] Please note that this conference is now being recorded. I now hand the conference over to Mr. Rahul Jeewani from IIFL Capital. Thank you, and over to you, sir.

Yes. Hi. Good morning, everyone. This is Rahul from IIFL Capital. I welcome you all to the third 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. Abrarali Dalal, Group CEO; Mr. Vikas Maheshwari, Group CFO; and Mr. Saurabh Bhandari, Head of Investor Relations. Over to you, sir, for your opening comments.

[Audio Gap] Medicare Limited Earnings Call for Q3 FY '26 and 9 months ended December 31, 2025. I would like to start with a few key strategic and operational updates for the quarter. Our operational performance showed steady improvement across all the key performance indicators, including outpatients, footfalls, IP discharges and deliveries. Growth has been quite satisfactory, considering the festivities, year-end holidays and ongoing seasonal impact. The new units performed well with a steady improvement both in IP and the OP volumes. The acquired hospitals at Warangal and Guwahati have operationally well integrated into Rainbow network. Both these hospitals are performing well and in line with our expectations. During the quarter, we commissioned a 100-bed hospital at Rajahmundry, strengthening our presence in Coastal Andhra Pradesh. This -- The performance of this hospital so far has been exceptional and very close to breakeven in a few months' time. The 90-bed spoke hospital in Electronic City, [ Bangalore ], it just commenced the operations, reinforcing our footprint and the -- advancing the hub-and-spoke model in Bengaluru. With these additions, the company has largely completed the planned expansion for the current cycle and now transitioning from the phase of capacity addition to the execution. For Q3 FY '26, the company reported revenue of INR 445.4 crores, growing at a 12% and the EBITDA of INR 147 crores with a growth of 9% and a PAT of INR 73.9 crores, a growth of 7% compared to the Q3 of the last financial year. Occupancy for the quarter stood at 47.2%. Coming to projects, the 60-bed spoke hospital [ in ] Hennur in [ Bengaluru ] city is in concluding stages, and we're awaiting for the final governmental approvals. We expect to commence operations in a few weeks' time. The construction has started at the regional hub hospital at Coimbatore of 130 beds. We are targeting to commence operations by end of the '27. Our upcoming Gurgaon hospital's expansion in Sector 44 and Sector 56 NCR, the execution is at this phase, the -- right now we are at the basement stage [ plan ], and we are hoping to complete the basement slabs in 3 months' time. The greenfield regional hub hospital in Pune of 150 beds has received project plan approvals from government and excavation work has just started. On the clinical side, I would like to present our experience of first liver transplant in Bengaluru hub hospital. An 11-year-old child was referred with the chronic liver disease with jaundice and then losing weight. Evaluation by our pediatric liver team concluded that the child had got an advanced liver disease and the only hope for this child to survive on long time is a living-related liver transplantation. So parents were -- we discussed with the parents and the -- assessed both the parents for the living-related liver donation. The mother was most suitable for liver donation. So therefore, our transplant team has actually done a proper workup of both the donor and recipient and done the transplantation using the right lobe of the mother to the child -- left lobe of the mother to the child. The whole transplant procedure went very smoothly. The post-operative period was very uneventful. The transplanted liver started working. Both mothers were discharged at day 7 and our child was discharged on day 18 post-operatively, with the normal liver functions. Though this was the first liver transplant in this hospital, systems were so robust to support the seamless transplant procedure. We are grateful for the mother who not only gave birth to this child and also gave a second lease of life by donating a -- her left lobe of liver. I'm pleased to say that now we perform the pediatric liver transplants surgeries across all our hub hospitals in Hyderabad, Bengaluru and Chennai. I'm -- as a pediatric liver specialist, I'm so excited and very proud of our teams. We were able to commence 3 liver transplant programs in the last 6 years' time with a survival of 94%. Clinically, we continue to see strong traction across pediatric specialties and the quaternary care, with improving case mix and the growing contribution from complex and high-end procedures. Our teams across the network remain focused on delivering high-quality outcomes supported by full-time consultant-led model with a strong multidisciplinary collaboration. I'm pleased to welcome Mr. Abrarali Dalal as a Chief Executive Officer. I'm sure his leadership and experience will be a strong addition to the organization. As I look forward, I would like to reiterate that the major capacity addition in the last 2 years have almost concluded, and we are now focusing on operational excellence, patient experience and strengthening our sales and marketing and to improve our occupancy across the group level. I'm sure with our focused executive plan, we will be able to deliver great outcomes and value for our stakeholders. With that, I now hand over the mic to Mr. Abrarali to introduce himself before passing the mic to Mr. Vikas Maheshwari for the financial update.

Thank you, sir. So good morning, everyone. I come with over 25 years of experience across the health care, telecommunications and FMCG industry. My career spans leadership roles in operations, strategy and business development. My previous track record has largely been in managing turnaround, brownfield expansion, driving clinical excellence and brand repositioning mostly in the health care industry. In my previous role, I led the growth journey of Sahyadri Hospitals for 6 years and successfully completed 2 transitions from Everstone Capital to OTPPB in October '22 and then from OTPPB to Manipal recently in October '25. I look forward to contributing to Rainbow at this important juncture, with a clear focus on improving occupancies, enhancing service levels, and building scalable, sustainable operations for a longtime growth. Thank you so much, and over to you, Vikas.

Thank you, Mr. Abrar. A very good morning to all of you, and thank you for attending this investors' conference. I'm pleased to brief you on the financials performance and the key developments of Rainbow Hospitals for the third quarter and the first 9 months of FY '25-'26. Operating revenue for the quarter stood at INR 445 crores, reflecting a growth of 12% when compared to the corresponding quarter of the previous financial year. For the first 9 months, our revenues stood at INR 1,243 crores, reflecting a growth of 9% when compared to the same period of the previous financial year. Our EBITDA for the third quarter amounted to INR 147 crores, marking a 9% growth compared to the same period last year. For the first 9 months, our EBITDA stood at close to INR 400 crores, reflecting a growth of 6% when compared to the first 9 months of the previous financial year. The EBITDA margin for the current quarter is at around 33%, while for the first 9 months, our EBITDA margin is 32.1%. The profit after tax for the quarter is INR 74 crores, a growth of 7.2% in comparison to the corresponding quarter of the last financial year. For the first 9 months, our PAT stood at INR 2,303 (sic) [ INR 2,033.3 ] crores, reflecting a growth of 8.3% when compared to the first 9 months of the previous financial year. In terms of the operational performance, inpatient discharges, outpatient volume witnessed a growth of 9% and 18%, respectively, when compared to the corresponding period of the last financial year. Deliveries grew by an impressive 16% when compared to the corresponding period of last year. Our payor mix continued to remain robust and the balance with 51% of the revenue coming from the insurance, and the balance 49% coming from the cash patients. For the first 9 months, the payor mix remains more the less same, where the cash stands at 48% and 52% at insurance. I'm pleased to inform that our company continued to maintain a robust balance sheet with a cash position of INR 579 crores as of December 31, 2025. These funds will support our ongoing capital expenditure, merger and acquisitions plans. With our current cash and anticipated internal accruals in the coming quarters, we are well positioned to complete all our planned capital expenditures using internal resources. During the quarter, company has invested INR 57 crores in capital expenditures towards expanding and enhancing our services at existing and upcoming hospitals. With these insights, I conclude my financial update. I now invite questions and suggestions from the participants. Thank you.

[Operator Instructions] The first question is from the line of Dhananjai Bargodia (sic) [ Bagrodia ] from Alchemy.

Congratulations on yearly [indiscernible]. Just wanted to understand, sir, what are we thinking regarding occupancy, because now we have enough capacity, how are we thinking on growing occupancy?

Question on occupancy, how do we build occupancy?

Yes. Well, the current occupancy is about 47.2%. So this year, we have seen the -- some seasonal mutedness across the group, actually more so in the matured hospital groups, like in Hyderabad, Andhra and Bangalore. So that's what actually affected the occupancy levels. So what we have seen is that this performance, I mean, the occupancy has been lower in [ pediatric ] outpatient, numbers are lower than we [indiscernible]. So general patients, [indiscernible] [ intensive ]care. These are the 3 segments -- which in the last quarter also kind of expressed clearly that these are 3 segments which are being actually performed because of a seasonal mutedness. So rest of the kind of overall other system is actually very well positioned. Generally the Q2 and Q3 are the seasonal quarters. So this year, very unusually, we have not seen any kind of -- any -- the seasonal [ illnesses ], which impacts our -- the positively our footfalls and the IP admissions.

Sure sir. [ We'll ] just add that in terms of longer term, we are now below 50% utilization. What can we see or what can we think of doing to grow that significantly?

Dhananjai, your voice was not very clear, actually.

Okay. Hello?

Okay. Can you please repeat again? Not clear.

I think right now we're below 50% utilization.

Right.

What are we thinking longer term on how we could move that? Because once we get that, then our margins and numbers could be increasing significantly and even our growth will be there. So anything we're trying to pinpoint that on how to growth -- how to grow occupancy?

No, absolutely. There's -- every plan is in place for the next year the -- to drive the occupancies and also, there is -- that's why I said, we have actually strengthened our sales and marketing. We have got a senior leadership in this position and also Mr. Ali is joining us. And also we are looking at kind of driving the aggressive sales and marketing and also to see that the other avenues are actually the -- improving the occupancies. And we're also evaluating that to see that whether any some of the hospitals, whether the CGHS would work, at the revised rates. So that is in the evaluation, but we have not taken a call yet. I think these are all things which we'll definitely kind of -- we'll -- we are seriously looking forward to improve our occupancy to kind of north of 55%. That's where I think we deliver a great results.

North of 65%?

55% to 60%.

Okay. And sir, would we look at also increasing now more capacity in the near term? Or would we now just focus on occupancy, occupancy, occupancy?

Yes, we have done a large capacity addition, almost 780 beds in the last 2 years. This is -- and also, there's -- our pipeline is very strong and the deliverables are going to come in the next 18 months, 24 months' time, next set of beds. So we have 1.5 years of clear operational to execute our recent addition of the beds. I think the way this is actually positions us very well to kind of -- to do the great execution, try to drive our occupancies, drive our operational outcomes.

Okay. And sir, the average length of stay for this 2.73, what do -- what are we targeting? Is this a fair number we should target going ahead? Or how should one look at this?

Yes. Dhananjai, this is Vikas. With respect to the ALOS, it has been broadly in the range of 2.6 to 2.8. So the mean is somewhere is 2.7 plus/minus. I think that is the right trajectory for our business model.

Okay, fine. Fantastic. And ARPOB growth at some stage, let's say, now we have already reached -- We're actually doing really well on ARPOB now. We've almost INR 60,000. Would it be fair to assume that ARPOB has peaked out? Or do we see in that also improving [ some ]?

The Inflation adjust ARPOB growth may be there, but the right metric is to check our ARPP basically, because of the -- a lot of ARPOBs keeps changing. So if you look at our IP -- ARPP, I think that is the most important parameters to check.

Okay. But is that your disclosure?

We expect it to -- yes, 5% to 7% CAGR growth. 1 or 2 quarters here and there, there may be some aberrations. But over a larger period, longer period, we have seen it's growing by 6% to 7%.

The next question is from the line of Prithvi Raj from Unifi Capital.

First, on the new hospitals, is it possible to give more details about how Guwahati, Warangal, Rajahmundry are scaling up? What kind of patients are we getting? And how is the insurance empanelment? Also a follow-up on that, could you please give us the occupancy and margin details for each of these 3 hospitals during the quarter?

Prithvi, it's a good question. As a company policy, we don't give the geography-wise details. Since you have asked for the details, what we are saying that whatever the acquisitions we have done, at the time of acquisitions, those companies -- like Guwahati was doing close to INR 8 crore revenue per month. I think it is doing slightly better than that per month right now. Warangal, when we have acquired was doing close to INR 2 crores, INR 2.5 crores revenue per month, depending upon the month, 2.2 times. I think we have reached to that trajectory again. As far as -- so -- and we are improving as the empanelment and insurance empanelments are happening, it is improving now. As far as the insurance empanelment is concerned for both Guwahati and Warangal, happy to share that 70% of the insurance empanelment is done. 2 or 3 large insurance companies where the empanelment is pending, our team is in touch with them. Hopefully, before February, March, we should see that -- those empanelments also in place. So the company is completely focused on -- as far as the business [ enablement ] years are required in terms of the [ empanelment ] with the government departments or the insurance, we are on top of that.

And anything on the margins?

Margins are -- for the Guwahati is as per the company level. For the Warangal, it is on the improvement path. It is EBITDA positive, but it is on the improvement path now.

And you also made a point that Rajahmundry has broken even in the first quarter. Is it right?

Yes, yes, it's close to breaking even in the first quarter, in the last month, yes. I mean, in the last month. So things are good in Rajahmundry. I think they have good traction, both in outpatient footfalls, inpatients, intensive [ cares are ] doing very well, lots of transports. I think it's doing very well, because the Coastal Andhra place is there, the Rainbow is very well known. It's kind of household name. So we have got a great team and doing very well.

So even given the way these hospitals are scaling up, is it fair to assume that maybe in 2 years, these margins can be in line with company's margins?

Yes. Some of the years will be definitely, that's what we expect and hope for, but not everywhere could be the same one. I mean, it all depends on the competitive landscape and also their pricing points, both of them [ priced ] where they are. In the long-term, I think we look at all the consolidated figure, what always -- we always tell about 24%, 25% margins. That's where Rainbow should actually aim and keep that margins while growing -- while we are growing.

Okay. One last question from my side. I mean, let it be ARPOB or ARPP, we saw a high growth this year. It might be also because of lower seasonal business. Let's assume we get back the seasonal business next year. Will the ARPOB or ARPP growth rate will be lower than inflation rate just for next year if the seasonal business comes back?

No. When you have a seasonal business proportionate to the ITT -- IHTT business and also the large intensive care business, it will not impact much. When you have a seasonal businesses, which are kind of simple illnesses, occupying the one bed days, 2 bed days, definitely it will lower, because you've got lots and lots of children getting admitted for one day and 2 days where the billing is very small. So I think what's important for us is that we have a large part of business which are pretty standard, which is obstetrics, intensive care services, newborns and pediatric specialties, pediatric surgical. So these are all pretty standard, regular business what we have. The seasonal business, which is normally Q2 and Q3, which comes on top of it and it gives a lot of occupancies and lots of outpatients and diagnostics and it drives the top line significantly. Seasonal business drives top line significantly. That's why you always kind of look at it -- what's important is that a business which you are doing is with a solid, good business which you have got, underlying business, and on top of it when you have a seasonal business and drives the growth, footfalls as well as occupancies, that gives a handsome the growth top line as well as the EBITDA. And the rest of this is kind of not -- because it is -- the quarter-to-quarter may vary. But at a year level, we need to look at it to see that if you have a ARPP 5%, 6% growing, is healthy.

Okay. Got it. Just a bookkeeping question because you had recent hires, CEO and some senior level, do we expect an increase in the employee expenses or it's already in the books?

Prithvi, as a senior leadership joined and we have already completed our CapEx plans, et cetera, so we are expecting a growth from the revenue also coming up and corresponding EBITDA margins also improving from there. So, though obviously, the new leadership, whatever is joining, there maybe be a cost. But as a percentage to the revenue which increase, we believe that in next 2, 3 quarters, this will stabilize there.

The next question is from the line of Nancy Yadav from Allegro.

Congrats on a great set of numbers. I think some part of my question already got clarified in the earlier question. But I just wanted to understand why there has been some decline in the volumes and our revenues are flat as compared to the previous quarter, but there's been some decline in OP and IP volumes. And we started our Rajahmundry facility also this quarter. So how exactly should we look at a decline in volumes? Was it just because of seasonality or there was something else that impacted it?

Oh, it's clearly seasonality what we have seen. What has happened when you look at -- we had a high base last year. We had a pretty high season in the last year in terms of occupancies, in terms of outpatients and things. When it comes to seasonally muted that whatever is the kind of the numbers in the outpatient footfalls or the seasonal business, occupancy is gone off, especially in the mature units. So where we are kind of Hyderabad and Bangalore and these areas, Vijayawada, so that actually shows the kind of overall flat curve on the seasonal business side. So this is exactly why you're seeing kind of the lower occupancies in -- across the group more so in the mature units.

Understood. And sir, just another thing about hospitals. So when we start a unit, like we started 3 units recently, how long does it take for them to start ramping up, for them to start contributing meaningfully to financials?

Okay. So the -- for example, the Rajahmundry, we have started it. I think for the next financial year, Rajahmundry will contribute positive EBITDA without any doubt. So Electronic City in Bangalore will take about 15 months' time. That's what it is. And we are likely to start in a few weeks' time, the Hennur. That will not take more than 1 year time to kind of a breakeven. So this is -- more or less by next year, I think most of our last 2 years of units would be EBITDA positive. That's what we expect it to be. In Chennai, in Bangalore, except Electronic City, most of them will be contributing to positive EBITDA.

The next question is from the line of Anshul Agrawal from Emkay Global.

First question, was while you have suggested the time lines of breakeven for the Bangalore units, would it be possible to guide or quantify the losses that we could expect in the coming quarter or any period as such till these units breakeven? Also a follow-up on that is, Rajahmundry, I think in the last call, if -- we mentioned that we're expecting it to break in within 12 to 15 months, but I think we are on track to breakeven within 2 quarters. So any particular reason that we would want to call out or any change that we have seen that has happened versus our earlier expectations which has led to this strong performance in that unit?

No. Obviously, the Rajahmundry, our brand equity is very, very high in that Godavari district, that every household knows about Rainbow. So -- and we've got a great team. So we're able to [indiscernible] great teams in Rajahmundry. And we are doing a lot for intensive care services over there and the demand is fairly good. And based on kind of what our capabilities and competency that obviously now the traction is pretty good, much better than we expected in Rajahmundry because we have got a unit in Visakhapatnam, other unit in Vijayawada. This is in between, 200 kilometers on either side. This is a potential area and also strong agricultural delta area. So that's why it's actually done very well. There are lots of towns nearby Rajahmundry. So they're all contributing significant numbers to the kind of Rajahmundry unit.

Got it. Would you be able to quantify the losses or guide towards what kind of losses can we build in for the Bangalore units in the upcoming quarters?

Anshul, for 2 units, which is Electronic City and the Hennur, which is getting opened in a few weeks' time from here, for the full year, for the FY '26-'27, I think the loss assumption -- EBITDA loss assumption of INR 5 crores, INR 6 crores is a fair assumption.

Got you. Both units combined, right? Not per unit.

Per each. So INR 10 crores for both.

I would about say about INR 12 crores to INR 15 crores.

INR 12 crores, INR 15 crores loss Anshul, you should budget it.

Got it. Second question what I had was on the mature portfolio. While I understand the seasonality impact in the current quarter as well, we are hearing incremental news flow around competition sort of in the single specialty ramping up and another multi-specialty hospital is sort of coming up with a new hospital in Hyderabad itself. While we obviously can't call out a season will return next year, but do you foresee mature hospitals to sort of lag given the fact that increasing competition, funding for other hospitals is on the rise, especially in our core markets?

Oh, there's no doubt about it. The competition has been there for the last 10, 12 years' time in Hyderabad. It's always been there. But it's increasing. There's no doubt about it. So the multi-specialties who lost their -- the pediatric business and obstetric business, they are trying to kind of say that we also want to do a mother and child within the large multi-specialty hospital and also stand-alone small hospital, mom-and-pop stores, all these things, everyone is competing with the outpatient footfalls, delivery segment and those areas. See, when it comes to kind of the children who requires high-end care, who are sick would definitely come to the Rainbow. And because a number of local hospitals come in, definitely some outpatients. What we need to figure out is that now, how do we actually capture the larger market. Obviously, cities are also growing and also the more and more younger families coming into the city. We need to see how we can actually capture larger footfalls into our network, which means we may have physical hospitals. We kind of -- we have planned to do start some of the clinics in the local geographies because the traffic conditions are getting worse. This is what the requests are coming. So obviously, we'll have our own plans to kind of see the competing at the -- this local, small mom-and-pop stores or small children's hospitals, how do we position ourselves. So this is an ongoing phenomenon. I'm sure this will keep us engaged and try to do -- overcome all these challenges.

Got it. So again, would we be maintaining our sort of high teens top line growth aspiration/goal despite all these challenges in the mature hospitals or core geographies?

I'm sure. No, challenges are there everywhere. So when you have about 6, 7 multi-specialty hospital groups in each city, they have challenges, but they're overcoming. The same way for us. I think it -- see, the challenge is not there for us at the pari passu level. Equivalent player to Rainbow. At least they're all about 7, 10 years behind to us. So that's where it is. But what is small leakages where our OPD footfalls, people aspiration to go to nearby, we need to solve those problems. I think that is what we try to work around, because we have got close to 1,000 beds in Hyderabad. And we're going to continue to kind of expand ourselves to the OPDs in multiple ways and also more units. This will be continuous ongoing phenomenon. I don't think we're going to sit quietly and see that everyone goes. That's -- you have a brand equity, you have a kind of reachability to the population. That will continue to -- we continue to drive it as a leader.

Got it. Very clear, sir. Just one last question. Are there any immediate plans to increase the operational beds at the Guwahati hospital? I see that we only have 85 operational beds where the capacity is around 150 beds. Are there any immediate plans to increase the operational beds there?

I think that about next 3, 4 months' time, those will probably come into the -- probably a kind of a new financial year, early part we'll come into operation of those beds.

The next question is from the line of Rishi Dilip from RDM Advisory.