Rainbow Childrens Medicare Limited (RAINBOW) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Rainbow General's Medicare Limited Q2FI27 Earnings Conference Call hosted by IFL Capital. As a reminder, all participant lines will be in the lesson-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should we need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Rahul Jeevani. Thank you and over to you, sir.

Yeah. Hi. Good morning, everyone. This is Rahul from IFL Capital. I welcome you all to the second quarter earnings conference call of Rainbow Hospitals being hosted by IFL. From Rainbow, we have with us today Dr. Kancharla, Chairman and Managing Director, Mr. Abraal Ali Dalal, Group CEO, Mr. Sudarshan Patohdia, Group CFO, and Mr. Saurabh Bandhari, 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 quarter ended September 30th, 2022. We have delivered another quarter of robust growth with healthy numbers from matured, emerging, as well as new hospitals in inpatient volumes, outpatient footfalls, as well as deliveries. The revenue grew by 23% year on year to 548 crores, while EBITDA and FAT grew by 14 and 11% respectively. During the quarter, we commenced operations at a newly acquired 70-bed hospital in Nilur and 50-bed brand-new hospital in Guntur. These additions strengthen our presence across extending our network from Vishakhapatnam to Chennai. The Government of Andhra Pradesh has allotted two acres of land parcel to build a Pija Specialty Hospital in Amaravati, the new capital city of Andhra Pradesh. So, we plan to build this hospital in two phases with initial bed capacity. The project's capacity expansion remains disciplined with a focus on building high-quality hospitals with a clear division of spaces for pediatric specialties and obstetrics. We have 130-bed, 325 beds. It is near to completion of the shelf. As we are going to become the world's largest pediatrician has gone live. Coming to some clinical excellence, hi.

Thank you for joining us today. In my close to two decades of experience, the strategy rolls on long-term value creation for all stakeholders. I am excited to be a part of the Rainbow team, which is India's leading pediatric and perinatal health care. Rainbow has now embarked upon a rapid scale-up journey by enhancing its pan-India presence and tapping multiple levers of growth anchored on clinical excellence. I look forward to working with the Rainbow team to further strengthen its market standings and deliver desired organizational outcomes. Thank you once again. I would now like to hand over the mic to Mr. Brar for an update on the quarter.

Thank you, Sureshan. Good morning, everyone. Firstly, I want to congratulate the entire staff of Rainbow, both clinical and non-clinical, for their unwavering support in delivering a revenue growth of 23% year-on-year during the quarter ended F5 September 2027, which comes on the back of two solid performances in the last two trailing quarters. Team Rain was all set to end F527 on a very high note. Over the last three quarters, we have been focusing on and driving the following broad levers that we have been talking about building during our earlier calls. People, technology, best-in-class clinical outcomes, and growth initiatives like onboarding new clinical talent, focusing on community connect, and digitization. We have augmented the organization structure, keeping in mind the growth we are driving. We have created structures to manage our facilities in hyperlocal and zonal structures to increase the speed of execution. Our managerial bandwidth at the corporate office is complete with the onboarding of the new CFO. Once again, keeping in mind our journey to 5000 plus beds from the current 2600 odd, we are transforming to a new HIS which has already been rolled out in our flagship hospital at Banjara Hills, Hyderabad, and we have upgraded to SAP HS4 HANA. This is to ensure we are in tune with the latest technology and building a tech architecture that is scalable and able to serve us as we increase our capacity multipold. Over the last two quarters, we have had many doctors join our growth journey. Many are in discussions with us. This reinforces the might of Wainbo's medical infrastructure, ethical clinical processes, and the sheer strength of the brand, which attracts top consultants to associate with us. We have strengthened our outreach to the community by increasing hyper-local activities, including the introduction of a loyalty card called SHIELD, which not only draws new patients by offering certain perks, but also offers rainbow and opportunity to capture the lifetime value of the patient's journey, starting from the first OPD appointment right up to the delivery and subsequently to the vaccination and in-treatment that the child might require going further. Digital initiatives are playing an increasingly important role in our patient engagement strategy. We are expanding our digital presence across the spectrum of our services, supported by focused marketing initiatives and social media outreach. Our new CRM software has further strengthened our patient conversion mechanisms in the hospitals, driving higher outpatient and inpatient volume, as is evident from our reported numbers. We are gearing up to launch a new website and a new patient app in the next few months to corroborate with the rolling out of our new HIS. This new website and the new app will provide the most advanced and best-in-class experience to the users. The whole idea is to provide a more integrated patient journey, right from booking an appointment to having reports and diagnosis at the click of a button. Owing to all the initiatives mentioned, our mature hospitals have driven occupancies north of 50% and robust revenue and EBITDA growths despite experiencing a soft monsoon and lesser seasonal diseases. Our new hospitals at Rajamundri AP and Mahadepur at Bengaluru have progressed well. Both have achieved operational break-even. HRBR and Electronic City, the other new hospitals at Bengaluru are fast nearing the break-even milestone. All these hospitals are now fully integrated into the Rainbow Operating Model. The commencement of operations at Nellur and Guntur adds to a growing network in Andhra Pradesh. At the same time, we remain focused on the execution of our upcoming projects in Mumbai, Coimbatore, Indore, Groogram, Pune, and Siga Ali in Bangalore. As we expand our focus is on ensuring the new facilities are integrated effectively into the Rainbow Operating Model, Supported by established clinical protocols, operating systems, and management processes. Our priorities for the coming quarters remain clear. We will continue to drive patient volumes, improve conversion, strengthen capacity utilization, and accelerate the operational maturity of our new hospitals. We remain focused on delivering sustainable growth through stronger execution. Thank you. Let me now brief you on the financial performance and the key developments of Rainbow Hospitals for the second quarter and the first half of FY26-27. Our operating revenue for the quarter stood at 548 crores, reflecting a growth of 23.2% compared to the corresponding quarter of the previous financial year. For H1, our revenue stood at 1018 crore, reflecting a growth of 27.6% compared to H1 of the previous financial year. Our EBITDA for the second quarter amounted to Rs. 170 crores, marking a growth of 14.2% compared to the last year, same period. For H1, our EBITDA stood at 304.6 crore, reflecting a growth of 20.6% compared to H1 of the previous financial year. The EBITDA margin for the current quarter stood at 31%, while for H1, the EBITDA margin was 29.9%. Profit after tax for the quarter stood at 83.9 crores, reflecting a growth of 10.9% compared to the corresponding quarter of the previous financial year. For H1, our PAT stood at Rs. 146.4 crores, reflecting a growth of 13.1% compared to H1 of the previous financial year. In terms of operational performance, patient consultations witnessed a growth of 19% compared to the corresponding period last year. Deliveries grew by 20%, while inpatient discharges registered a growth of 15%. For H1, outpatient consultations, deliveries, and inpatient discharges grew by 21%, 22%, and 21% respectively, compared to the corresponding period of the previous financial year. Our payer mix continued to remain robust and balanced, with 63.3% of the revenue coming from cash patients and 36.7% from insurance during Q2 F527. For H1 F527, the payer mix stood at 64.2% cash and 35.8% insurance. I am pleased to inform you that a company's balance Sheet remains robust, with cash equivalents, fixed deposits, and mutual fund investments aggregating to Rs. 542.8 crores as of September 30, 2026. This provides us with adequate financial flexibility to support our ongoing expansion and capital expenditures. During the quarter, the company incurred a capital expenditure of 81.9 crores towards development and expansion of its hospital network and enhancement of existing facilities. With that, I would like to now throw open the house for questions.

Char and Loo. Participants are requesting this. I'm just going to ask you a question. Ladies and gentlemen, wait for a moment. The first question is from the line of Prithviraj from Unify Capital. Please go ahead.

Yeah, I have a question on your margins. Given that, from now on, every year you will keep adding more number of new bets, and that too in the new cities, it might take more time for you to reach break even. So how should you look at control margin profile going forward? Will there be a pressure every year because you keep adding new bets to it, or do you think you can maintain a stable margin?

Yeah. I think what we have, the beds which are distributed in various stages. We have matured group, and we have an emerging group, which is all kind of the hospitals which are nearing maturity. So, of course, the new beds will take some time to kind of break even. The block which is in the maturing hospitals, they are going to deliver the EBITAs along with the matured growth. So, we have been doing this last two years' time without much of margin pressure. We always say that margin pressure, whatever the new beds which are adding, may be about quarter to quarter, may be half a person, nothing more than that. So, that is how we've been disciplined in terms of executing our capacity expansion. It will remain to be the same. I mean, the last two years, we have demonstrated that without much of margin pressure, we were able to kind of deliver 30% EBITDA margin. Pre-end is our 25% margin.

Okay, got it. And on a pay-up mix, you know, historically, you have maintained certain pay-up profile. But, you know, given that you will be entering new cities, should we expect a change in the payout profile, or do you think we will continue only cash-press insurance?

I think that as far as the major cities are concerned, which is like Nidharabad, Bangalore, Pune, Mumbai, I think there is significant insurance penetration. So, that will be productive with 60% of this one. When we have kind of a prior two cities, which will have kind of a less of insurance penetration, so blend it together, blend, which we'll see about, definitely about 60%.

Sir, you know, my question is more from a government team patient. At any stage will it be considered, or you would like to stick to only cash plus insurance?

Yeah, I think it's a, we don't, for information, we don't do much of government. Our whole government business is less than 1%. I'm talking about cash and insurance, which is the private insurances. Even prior to cities, what we have witnessed recently is that insurance penetration has significantly gone up. For example, places like Vijayawada, Rajamundi, we are already witnessing about 30-35% of the insurance, private insurance.

Thank you. That's all for my time.

Thank you. Participants, we wish to ask questions. May I start at one now? The next question is from the line of Tamyanti Keraim from HSBC. Please go ahead.

Hi. Good morning, and thank you for the opportunity. I have two questions on your 2Q performance. First, you reported ARPOP growth of 15%. Again, I think a very strong number. However, what we are looking at, I think the broader industry level, companies are moving from reporting ARPOP to metrics like ARPC. Thank you. According to you, which metric should be the better representation of performance? And this 15% growth which you reported in 2Q, what kind of headroom you see as? That's my first question.

Our talk has been strong, actually, this year. I think it's driven mainly by the case mix. If you see our overall, our obstetric business has grown significantly, and also the addition of the 5% revenue addition from the fertility, and also the case mix. These are the three components in the A-Loss. There is a significant lower A-Loss. These are the components which actually push the R-POP to the very healthy R-POP. Normally, we do give up the guidance about 78% of R-POP growth. So, it does kind of happen sometimes when you have a kind of a better case mix and more obstetrics doing it and fertility adding it to them. And also, mind you that, you know, the children's hospital and women's hospitals, we do a significant outpatient as well. So that will add to the ARPOP. The ARPOP, yes, ARPOP is, again, you know, is only reflect on the inpatient's year-on-year growth. So, the ARPP growth can be a very steady and chronic sometimes because of how you negotiate your insurances, sometimes it takes a long, extra year time. If we combine ARPP for three years on average, it will be around about 67%.

So broadly in the similar range is what we foresee for our call, right? Either of them, it is somewhere 6% to 8%. And so in your presentation, we see more details, and thank you for that. So for the mature hospitals, we still see occupancy of 54%. So, because of your nature of business or mix, etc., what kind of maximum occupancy do you think is possible in your mature hospitals?

Yes, we do look at our kind of driving work. What we can do maximum is about 60% occupancy. If you see our mature hospital now, there is a season of softness here. That's what gives you an additional extra percentage because of the monsoons, delayed monsoon. I mean, we have literally not seen any of the seasonal business. In a way, I think I'd like to reiterate that now without any much of season, we were able to deliver the numbers this quarter. That signifies that now we are significantly moving away from the seasonality. Seasonality will always add, for any healthcare institutions, more so with us, to additional occupancy and additional revenue, which gives us more comfort. But this is a quarter which has actually been the last three quarters. We have seen that we have not witnessed any of the seasonal business. This is a pure play of kind of a pediatric and maternal care business.

And my last question is, so now you have planned to enter many more cities, newer cities as a part of your expansion. So, just wanted to understand your thought on, you know, any kind of education risk you see by entering into newer markets, and that too, I think, similar time frame, another like four to five years from now. So, I just want to understand your thoughts on entering so many multiple markets over the next few years and any education risk you might foresee here.

Yeah, Damanity, we have built a strong project stream and with the project director heading the teams. And we do kind of see that now budget enough amount of time for each project. Yeah, sometimes it may be, the delays I wouldn't expect to be in a more than two quarters, but most of the times we were kind of a plus or minus one quarter, we were able to deliver our, so maybe in exceptional situations, we did not come across that now the huge delays. For example, Chennai, we cut some delay because of our re-approvers on those things. We have come back and communicated with about six months delay of Chennai. Now it is on track now. So, it is important back now to keep you updated on timelines of our projects. I would expect this timeline delay is significantly, you know, high.

So, and these CAPEX should be funded through, mostly through your funds, right? Maybe there is not much reliant on borrowing, etc.?

I think we have a very healthy balance sheet. I mean, with the 1,000 plus bets, what we have, we should be able to, because cash, the balance sheet generates enough cash, plus the cash on the balance sheet, when we're looking at, to fund it.

Thank you, and get back in with you.

Thanks, Laurenti. Thank you. Before we take the next question, we would like to remind participants that we can best start in one to ask a question. The next question is from the line of Jodish Vijayan from Moth Financial Services. Please go ahead. Hi.

Am I audible? Yeah, please. Yeah, so this is Jodish from Moth Financial Services. So, thanks team for the opportunity. And my first question is on your marketing spend. How am I right now? How much is your marketing spend as a percentage of revenue? And what channels do you opt for the marketing? And how is it going forward?

Yeah, so we would be a little more than 2% on our marketing expense, okay? We have significantly looked at marketing this year, and we are looking at various channels, as I said in my speech. One is we are really going close to the community in various ways. We have introduced loyalty cards. We have looked at looking at entering corporate, private corporate, increasing the connect there. I think all that leads to our marketing strategy. Another important step we have taken is digitization. If you look at Rainbow over the last three quarters, the digital footprints of our patients are increasing substantially. So more and more patients are now looking at Rainbow digitally and going to websites, looking at our apps, and that's how we are creating a patient funnel, led by a strong and robust conversion in the hospital. So it's a combination of above-the-line marketing, digitization, and getting really, really close to the community. And that strategy will go on and continue to build as the time goes on.

Okay, got it. And as a group, your targeted occupancy will be 60%, right? Matured.

Yes, for the matured hospitals, that will be the number.

60%. So, you have 7 hospitals in the emerging cluster and you have 5 new hospitals also. So when will the group, when will as a group, when do you have any time period target to get the occupancy to 60%? Do you have any kind of target by FY28 or FY29 like that?

See, that's a, it's very difficult to predict the time. I think we are doing everything right in terms of inputs. Whatever is required to drive occupancy, that is increasing volume we are doing. Our throughputs are very high. Our ALOS numbers are very, very strong. We continue to target and, you know, recruit new doctors on board. We get closer to Community Connect. You know, we keep on, we rehash our call center. We keep on strengthening our tech. So, I believe all these inputs are placed, and without telling a time, I think we will be able to drive our occupancies to that number in appropriate time. That's the way I'll put it.

Got it, got it, got it. I have one more question. So, when you look at the specialty mix, right now, the IVF is nearly 5% compared to 3% in the last quarter. So, do you have any plans to increase the percentage to double digit or do you have any kind of plan to increase IVF mix?

See, for our business, IVF is very, very in-house. As our obstetric OPDs keep on increasing, we will keep on driving patients into IVF. So as our obstetric business grows, our IVF will grow parallelly. Yes, we have two or three standalone centers, which we have started sometime back. But largely, the strategy remains, you know, driving our in-house OPD consultations into IVF. And proportionately, it will keep growing, along with the obstetric OPDs.

Okay, thank you. Thank you so much. That's all from my side. Thank you.

Thank you. Participants, you need to ask questions.

The next question is from the line of Shubh Karla from ASICI Naita Investments.

Please go ahead.

Thanks for the opportunity. So, my question pertains to the ramp-up of your 40-lady business and its potential contribution to the company's overall profitability. So, could you please kindly share an update on the progress of the IVF business so far, particularly in terms of scale-up and its operating performance? And further, if you could also share the current EBITDA margins separately for each of the three business verticals, which is the pediatric care, women and child care, and fertility IVF. So, you know, it would be helpful in understanding the relative profitability of these businesses. You know, as the fertility business scales up and its contribution to the overall revenue mix increases, how should we assess its potential impact on the company's consolidated EBITDA margins for the medium term?

Okay, see, as I said earlier, we will keep on ramping the IVF business through the growth of obstetric OPDs because that is the first port of call. As a patient comes to an obstetrician, it is largely the obstetrician who decides whether a fertility advice is required or not. If you see the growth of our current IVF business, it's largely in proportion to how our OPDs have grown. Yes, we have got two, three standalone centers where we deploy various strategies to increase the business. So our IVF business will keep growing in two ways. One is proportionately to the OPD growth of obstetrics. And secondly, as we set and get set and get settled in our new centers and as our marketing strategies, which are largely digital, start hiring. So this is how we look at IVF business. Of course, it will keep on contributing to the overall mix and profitability. To define the three different profitabilities between specialties would not be appropriate on this call, maybe. But if your question, the first question on how we plan to grow our idea of business, that's the answer.

Thank you.

Thank you.

Thank you. The next question is from the line of Pavit Rajayvan from PrimeInvestor.com. Please go ahead.

Hi, thank you for the opportunity. Hi, this is with regards to the recent oncology drug drug caps that are coming into force. I wanted to understand if and what sort of impact this would have on JINCO.

Okay, see, I'll just break up our cost, okay? So, the pharmacy cost currently for Wainbo is around 14%, okay? Out of which around 7% is vaccinations, which is nowhere next to a drug cap. From the balance 7%, if you look at our business, only less than 0.5% would be oncology and drugs that may come under any scanner for price capping. So, very, very clearly, and we said that before, that for Rainbow, this price capping is almost insignificant.

Thank you.

Thank you. The next question is from the line of Rahul Jeevan. Go ahead.

Hi, sir. Thanks for taking my question. Sir, in terms of, let's say, the profitability profile between the various clusters, now, while emerging hospitals are, let's say, at a lower occupancy profile than mature hospitals, we see that their EBITDA margins are broadly in line with the mature hospitals. So, if you can comment in terms of what is helping us drive, let's say, fairly strong margins within the emerging cluster, and then a related question for that would be, with the ramp up in, let's say, the new hospitals, what kind of an EBITDA margin trajectory you see for the new hospitals over the next two-year period? And obviously, with, let's say, incremental capacity coming online, there would always be new hospitals which will get added to the new cluster. But as of now, whatever new hospitals are you operating, when do you expect those new hospitals to, let's say, reach a steady state EBITDA margin profile of between 20-25%?

Rahul, I think this classification is mainly done for the analyst's sake, actually. So, we have a clearly matured hospital which has more than five years. We have another group of hospitals which are emerging hospitals, and then new hospitals. So, clearly to see that in emerging hospitals will also show, are the ones which are going to fire, are the ones which are going to contribute significant EBITDA. And also, as we are actually adding After the second year, they get into the emerging pool. So, in an emerging pool, the EVs are fairly healthy. That's how we look at it. And also, the new hospitals, it depends on the way the new hospitals are done. For example, when the new hospitals are done, in a cluster like Hyderabad, and the energy of rain, it will do a positive EV in the first year. So, and Bangalore will take about a year, 15 months' time. Chennai will take about 15, 18 months' time. So, other places, whether we see less than two years, most of our hospitals, so this is what the, whether it's including a new geography. So, this is how we have positioned ourselves. So, therefore, we need to look at the matured hospital to see that what it's contributing, emerging hospitals, how well that kit is going, And also contributing significant revenue as well as EBITDA and also the occupancy levels. That's where the healthiest part of it is what we see. I think that's what it demonstrates in our presentation that the emerging hospitals are very healthy. So the third bit is that, you know, the new hospitals. If you see our new hospitals, you see in that, you know, the numbers are good, but there's a minus 16%. Those are all started in the last six months, eight months' time. Obviously, the operational office will be in that. If I had started a couple of hospitals that were there in that block from Hyderabad, that could have been even better. So, I think this in a way that, you know, for ourselves internally, for also analysts, gives a lot more clarity on how the block is moving because we have almost like a, I mean, 100% vets.

So, you obviously referred to the fact that most of your hospitals would tend to achieve You have a break-even within a two-year time frame, depending on the markets where you are commissioning those hospitals. Would you have the same expectation for the Delhi NCR hub hospital as well, that how much time do you think that the Delhi NCR hub hospital would take for you to achieve EBITDA break-even, and what kind of an EBITDA loss we should factor in our numbers, Essentially, from the two Delhi NCR hospitals in FY29 and FY30.

I think it's very early to kind of talk about it, and probably we would give the guidance probably six months or three months before commencing the hospitals, Because we have ambitious plans and the groupments and also how to drive hospitals, obviously that we would look at drive these hospitals to EBITDA break-even in two years' time.

Okay, sure, sir. And, sir, with some of the sales and marketing investments which we are doing this year, what we see is that there is an acceleration in our top-line growth trajectory. So this quarter as well, we delivered a healthy 23% kind of a top line growth. And in the past, we have guided about a 20% revenue CAGR for the business. So let's say with these incremental sales and marketing investments, and the capacity pipeline which we have, do you think that potentially a growth could be higher than 20% which you have indicated in the past going forward?

So Rahul, we are working pretty hard in all these initiatives and growth initiatives. Having said that, we remain optimistic, but we'd still talk about high-team growth. But we will remain optimistic about higher growth in terms of top-line.

Okay, sure, sir. I will join. I'll let you.

Thank you. Before we take the next question, we would like to run by participants. The next question is from the line of Alankar Garude from Kota Constitution.

Hi, good morning, everyone. Sir, for the mature hospitals as occupancies range up, can margins theoretically go up further?

So, we are already at a pretty best-in-class kind of margin in mature hospitals. So, my comment here will be that, yes, we will keep on driving the top line, keep on trying to increase the efficiency, the occupancies, and remain optimistic of a similar or slightly better, maybe, margin.

And would there be a significant dispersion in margins across these 14 mature hospitals?

Yes, there would be. It would all, again, depend on the city that we are in and the levels of occupancy that we are at, and what is the popularity of our brand in those cities. Again, it's very, very related to top line. So, it will remain variable, but not too far. It will not be a very big window of variability.

Got it, got it. The second question is, now without the seasonal benefit, volumes have picked up quite well across IPD as well as OPD. You have been speaking about the growth initiatives. Can you help us assess where are you in this journey? And have you more or less bridged the gap versus multi-speciality hospitals when it comes to marketing, the digital initiatives, basically the overall growth initiatives that you have?

See, we have a very clear path. You know, we have a proper plan, which is for these growth initiatives, which we have kind of spelt out to ourselves for the next one and a half, two years. If you ask where we are in that growth journey, we may be 50-60%. With the rollout of our new HIS, things will get trended. Having said that, again, I wouldn't compare with multi-specialities, a very different business. Ours is more of a, you know, awareness. and conversion-led business, and we are working on that. So, let's see how it goes, but yes, it will get better with time.

Got it. Yeah, I think a few quarters back, Abharad sir, you had mentioned the gap is around 35, or you were 35-40% of where the multi-speciality hospitals are. Right now, you are saying it's around 50-60%. Should we expect you to bridge the gap completely, even though there is a difference in the model?

Well, see, again, when you look at, if you look at it qualitatively in terms of, you know, if you're measuring between, with multispecial and Vinyasa, as I said, we're getting there. We will get better. Let's see how it goes. You know, it's a very dynamic, changing market. You know, marketing tools keep changing. The avenues of marketing keep changing. So, as we go on, we will obviously keep on trying to reduce the gap. And I think clearly the volume growth signifies that we seem to be on the right track. So, we'll continue, and let's see how it goes.

Got it, sir. And one final question. As you expand into new cities, how will you ensure the hub and spoke model remains intact without experiencing any material delays in establishing the hub and spoke network?

I think what so far we were able to do very effectively in Hyderabad, and Bangalore is actually now 6 hospitals, 7th one is being built. And in terms of bringing synergies and also trying to kind of see that, you know, the benefits of that hub and spoke, yeah, we have seen it very clearly. So now we're in the state of Antipatis. It's not a one-lot. It's a very long-stretched state. So we were there right from Vishakapatnam to Chennai, the kind of every, almost 200 kilometers, one hospital is there. So, this is the network effect which always will turn out positive to any hospital group. So, for a complex patient, all those things will get referred automatically to your hub hospitals. Delhi NCR, at the moment, what we have is we have two hospitals. And once we have the hub hospital over there, naturally, we have quite a big plan, an ambitious plan about being a spoke hospital within the NCR as well as in the north. So the playbook changes 15 to 2 hours in the next three to five years' time. So we are quite ambitious about it, and we are rightly ambitious about it.

Just to understand this clearly, now, when we are expanding in Hyderabad and Bangalore and Chennai, I mean, around Hyderabad or around Bangalore and Chennai, relatively, it was three cities wherein and you are expanding the network out there. But when we talk about the current expansion plans, be it Mumbai or Indore, you have spoken about projects under discussion being in Lucknow, Jaipur, Boneshwar, Chandigarh, etc. Essentially, you now have to establish that network across multiple cities. So, that's why that question as to would there be a delay in establishing a network because you can't possibly expand and have so many new hospitals coming in across so many different locations.

Yeah, it's about three to five years journey, this one. So, I think our focus is significantly changing to North. North is what we believe is an opportunity, and also very underserved, and also that these cities definitely need children's hospitals. I think that's been witnessed and seen by the multi-speciality, in the birthing centers, everywhere. We take We have multiple parameters, whether it's the birth rate, whether it's the affordability index going up, and also the number of players doing the PGA selection, this domain is a significant. So that's why we see NAAT is a big opportunity for us, and I'm sure someone like Rainbow, with almost close to three digits experience, we can play our way out very well in NAAT. Yes, we do need to have a significant manageable team, and the CapEx outlay is great. And once the law has to start, then, you know, and meanwhile, all these things, we'll put them in the framework.

Understood, sir. That's it from my side. Thank you and all the best.

Thank you. The next question is from the line of, you know, Patipa Aramphil from Elara Capri. Please go ahead.

Hi. Good morning, all of you. Just to follow up on the previous question regarding the drug margin capping, when you say 14% is the pharmacy cost, do you mean to say that 14% of your revenue comes from pharmacy?

That's 14% of net revenue is the cost.

Sorry, cost as in 14% of your net revenue.

Yes.

Yeah, pharmacy is 13% of revenue. Okay. And I just want to understand, you know, right now the margin cap is only on oncology, but if at all it gets extended to all medicines, the margin cap, would that have a very serious impact on this 14%?

No, it would not. See, again, as I said, 7% is vaccinations, okay, which can only probably go up. Of the balance 7%, okay, the caps which are getting discussed, many of them are already implemented. And all this falls in our window only less than around 0.5%. You know, as I said before, it's very insignificant, even if these caps come. Because these caps are likely to come on high-end antibiotics, so on and so forth. And onco-drugs, as you rightly mentioned. So, in our business, that is very insignificant.

See, in a pediatric business, I'll just give you a little more medically clarify that. See, the drugs cost for the, for example, obstetrics is very minimal. In gynecology, very minimal. Drugs cost comes in IVF, oncology. Most of the antibiotics been, almost whatever we use currently, antibiotics have already been gone into DPCO, okay? So, we have done a deep dive and looked into it. I think the impact, whatever we've been talking about it, is very insignificant. Some oncology drugs comes, list of drugs comes, some to an extent of IVF drugs comes, otherwise we are fairly, for instance, I have not collected how much EBITDA compression will come. I am pretty sure that it will be much less.

Understood. And why do you say vaccinations will not get impacted? Is that outside of drugs, price or margin controls?

So, most of the vaccinations are actually international brands, and I'm not sure how it's going to work, because there are too many varieties of vaccinations are there. Vaccination is a patient's choice, and patients do come and ask, because this is a, we being a private children's hospital, and most of the times, parents do come and ask for, I want GSKs, I want Sanofis, I want Merck, I want, you know, then obviously, you know, it's a choice of the vaccine. It is not something that an emergency or disease. It is more of a kind of a lifestyle. People want to have a choice to get what they want to do. So, very unlikely to be.

Got it. Thank you, sir.

Thank you. The next question is from the line of Rahul Jeevani from IFL Captain. Please go ahead.

Yeah, thanks, sir. So, sir, beyond, let's say, the disclosed projects in the pipeline, the presentation talks about a ballpark around 1100 bits getting commissioned across these new cities. Now, what would be our approach in terms of expansion in these new cities? So, would you look for M&A assets to enter some of these new cities or our approach would be to largely expand organically within these new markets?

Some of them are organic and there are some opportunities also there, which probably may work out for us.

Okay, and sir, in terms of M&A opportunity, what kind of valuation multiples you are seeing for some of these assets? So, if you can comment on that as well.

I think what we have done so far is about, we have given EBITDA, EBITDA multiples about 11.

Yeah, on the M&A front again, so there won't be, since we're a pediatric hospital, okay, there would be very like-to-like kind of opportunities for M&A in the market. You know, we wouldn't be looking at getting the adult acquisition and then, you know, how it wouldn't work out. So, to that extent, it would be limited, inorganic.

Okay. So, sir, do you have any number in mind in terms of, let's say, out of these 1100 beds across these new cities, what proportion could come through from M&A?

Very difficult to see at this point, although we are under lots of discussions, it would be, you know, we wouldn't be too sure at this point.

Sure, sure, sure. And just in terms of, let's say, some guidance around margins. Now, obviously, this year, our margins are slightly under pressure because of these incremental sales and marketing spends which we have done. So, if you can comment in terms of where do you see your overall margins landing up for FY27, and then how do you see that playing out over the next two-year period with the incremental capacity which is going to come online for us?

So, again, Rahul, I think, as Dr. May said earlier, that, you know, we will be looking at a red line of around 25-26% million days' EBITDA, even after all the expansion. Currently, our margins, they're pretty healthy, and I think they'll remain robust, because if you look at the split between our three categories, it is faring pretty well. And as the new hospitals come in the, you know, profitable bracket or start burning less money, our margins will probably remain the same, get slightly better. That's the way we'll get it.

Sure, sir. And let's say there's ballpark 25-26% margins. Do you think that those margins can sustain with the Delhi NCR expansion as well? Let's say for the first year when Delhi NCR would have some losses. So, because, obviously, we would see some expansion on our base business profitability. So, with Delhi NCR, is it possible to sustain these 25-26% margins?

See, how I would look at these, I would look at the growth as a balance sheet, as a balance sheet, as kind of an expanding balance sheet, expanding the revenues, and that is a trajectory. Now, you are covering a lot of multi-specialty hospitals, that's the same scenario, isn't it? There will be margin pressure, probably a few quarters for a year time, maybe 0.5 to 1%, but that can be absorbable. And because you are already kind of on EBITDA trajectory of 25%. So for us to ambitiously growing the network and building larger, meanwhile, your entire south is going to be a kind of a mature stage. By the time Delhi comes, most of the hospitals come into a mature stage. That will all start firing. So, which is why that's a backdrop of us saying about we will continue to deliver about in and around 25% of the pre-indisive beta. I mean, maybe a margin pressure may come about 0.5% when there is too many beds come into the few quarters into the play. Yeah, that's the reality, the truth of the story. I mean, I keep tracking off all of the hospitals. It's the same scenario for everybody. Perhaps we are in a better stage than any other people in terms of margin pressure.

Yeah, obviously, sir, that as you rightly pointed out, and despite, let's say, this 50% capacity addition for us for the past two years, our margins have held pretty steady. So, yeah, my question was just from Delhi NCR because it's a large hospital and a new market. So, yeah, sir, thanks for providing that clarification. I will join back with you. Thank you.

Thank you. The next question is from the line of Shubh Karla from Asitthi Mehta Investments. Please go ahead.

Thanks again. So just to follow up on my previous question, so without getting into specific segment level margin, would it be possible to indicate whether the EBITDA margins of each of the three verticals are higher or lower than the current consolidated EBITDA margin of around 31% post-India? See, the objective is to understand whether the increasing contribution of the IVF business is likely to be margin-accreditable, margin-dilitable or similar for the company as it scales on a consolidated level. Thank you. Paediatrics, obstetrics, and IVF margins separately, are they higher or lower than the EBITDA margins at the company level? Speciality-wise EBITDA margins.

No, we've not looked at, so far, specialty-wise margins, and I think the pediatrics and obstetrics are both together hand-in-hand in terms of margin profile, and IVF is a small business at the moment. It's grown well. Now it's reached to 5%. We'll have to start looking at it differently now as we move forward. At the moment, it's not that significant for us to give a separate line item.

Thank you.

The next question is from the line of Tushar Rakate from Umayka Portfolio Advisors. Please go ahead.

Thank you for the opportunity. I just want to know on the constitution, the state's clinic, we have a hospital in common with them for the Hyderabad, Bangalore, Chennai, Delhi, and in the coming time also, they already have hospital in Pune, Mumbai, and Gudrum. I just wanted to know, though we are better in terms of, you know, the margin profile and the ROE, ROC, I just want to know the pressure in terms of the competition from the Cloud9 chain.

See, I mean, they've been there last 20 plus years, 25 years almost. So, I mean, I think they've been operating in our competitive markets as well. So we are a larger player. We are not a mom-and-pop store. We are not an optometrics, and we are more of full-time doctors, given long-term and much larger 40. So we have never seen them as competitors like Reddl. Reddl has been there in Apollos 1 and significantly in Hyderabad for a long time. We are not able to do any impact on us. And many people there, in the local chains as well, we continue to grow our obstetrics as well. They tell if there is any kind of a thumb degree of competition comes with only obstetrics. Otherwise, our children's play is much larger, and that doesn't have much competition. We don't feel it's competition.

Sir, I just wanted to know, whenever you start in the hospital, in how many years do we see that changing into a matured one?

Some geographically, it will become a kind of matured hospital for 3-4 years' time. Some places may take a little longer than 4-5-6 years' time. It depends on the, even the micro-market. It's a, it's a, it's a, the demand, suppose, smoke hospital in some micro-markets, they do phenomenally well, by third, fourth year, they will reach in company EBITDA. Some of them will take a little longer, two more years. It's a very variable, city to city, and also micro-market to micro-market. And overall, what, how, I mean, in Hyderabad, if I do any hospital, whether small or big, medium, we As

there are no further questions, I would now like to hand the conference over to the management for closing comments.

Yes, thank you. Thank you, investors, for joining the conference call and giving your views and asking the thoughtful questions. Thank you very much for this. If you have any questions, you can reach out to the investor relations team at the Rainbow Hospitals. Thank you. Thank you very much. Thank you very much. Thank you. Thank you. Thank you.

On behalf of IFL Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.