Prabhudas Lilladher Sets Target Price of Rs 1615 for Rainbow Childrens Medicare

Rainbow Childrens Medicare Reports Strong Q4FY26 EBITDA Growth

Rainbow Childrens Medicare has reported a strong growth in its earnings before interest, taxes, depreciation, and amortization (EBITDA) for the fourth quarter of fiscal year 2026 (Q4FY26). The company's EBITDA growth of 26% year-over-year (YoY) is a significant achievement, with organic growth in double digits likely to sustain in the coming quarters.

Expansion and Growth Strategy

Over the past two years, Rainbow Childrens Medicare has added approximately 780 beds to its existing capacity, effectively concluding its current expansion cycle. This strategic move is expected to drive profitability improvements from fiscal year 2027 (FY27). The company's EBITDA compound annual growth rate (CAGR) is projected to be 18.5% over FY26-28E, compared to 13% CAGR over FY24-26. This growth is expected to continue as new capacities ramp up.

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Financial Strength and Sustainable Growth

Rainbow Childrens Medicare enjoys higher margins, strong free cash flow (FCF) generation, and healthy return ratios due to its asset-light hub-and-spoke model. The company is the only integrated multi-specialty pediatric hospital chain in India, offering comprehensive services and a full-time doctor engagement model. This unique business model provides a competitive edge and sets the stage for sustainable growth.

Outlook and Recommendation

The company's strategic expansion across its core markets in South India is expected to drive sustainable growth. Our revised estimates for FY27E and FY28E EBITDA have been increased by 2-3%. We maintain a 'BUY' rating with a revised target price of Rs1,615/share, valuing the company at 25x enterprise value to EBITDA (EV/EBITDA) based on pre-IndAS FY28E EBITDA.

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