Rainbow Children's Hospital revenue rose 23% as EBITDA margin fell

Rainbow Children's Hospital reported Q2 FY27 revenue from operations of Rs 548.02 crore, up 23.2% year-on-year, but earnings before interest, tax, depreciation and amortisation (EBITDA) margin fell 250 basis points to 31.0%. Total expenses rose 26.8%, with doctor fees, employee benefits and other expenses each growing faster than revenue.

How did Rainbow's Q2 FY27 revenue and profit change?

Rainbow increased revenue, EBITDA and profit in Q2 FY27, but earnings grew more slowly than sales. Revenue from operations rose from Rs 444.80 crore in Q2 FY26 to Rs 548.02 crore, while total income increased 22.8% to Rs 556.15 crore. Other income declined 0.8% to Rs 8.13 crore from Rs 8.20 crore.

EBITDA, reported after Ind AS 116 and excluding other income, increased 14.2% to Rs 169.98 crore from Rs 148.87 crore. Profit before tax rose 8.9% to Rs 111.50 crore, while profit for the year increased 10.9% to Rs 83.89 crore. These growth rates were below the 23.2% increase in revenue from operations.

Rainbow also recorded quarter-on-quarter growth from Q1 FY27. Revenue from operations rose 16.6% from Rs 469.99 crore, EBITDA increased 26.2% from Rs 134.65 crore, and profit for the year rose 34.1% from Rs 62.54 crore. EBITDA margin therefore improved from 28.6% in Q1 FY27, although it remained below 33.5% in Q2 FY26.

Why did Rainbow's EBITDA margin fall despite higher revenue?

Rainbow's EBITDA margin declined because total expenses grew 26.8%, exceeding the 23.2% increase in revenue from operations. EBITDA margin was 31.0% in Q2 FY27 against 33.5% a year earlier. EBITDA nevertheless increased by Rs 21.11 crore in absolute terms.

Professional fees to doctors, the largest disclosed expense line, rose 32.0% to Rs 140.30 crore from Rs 106.32 crore. Employee benefits expense increased 27.9% to Rs 75.18 crore, while other expenses rose 29.4% to Rs 88.80 crore. All three categories expanded faster than revenue.

Materials consumed increased 18.6% to Rs 73.77 crore and finance costs rose 16.7% to Rs 22.00 crore, both below the revenue growth rate. Depreciation and amortisation increased 24.5% to Rs 44.61 crore. The presentation does not attribute the margin change to a specific operational factor, but it discloses faster growth in doctor fees, employee costs and other expenses.

Which hospital clusters contributed to Rainbow's Q2 results?

Rainbow's mature hospitals accounted for the largest share of group revenue and reported the highest cluster EBITDA margin. The 14 mature hospitals generated 73% of group revenue and held 63% of group beds, with 54% occupancy, a 28% pre-Ind AS 116 EBITDA margin and average revenue per occupied bed (ARPOB) of Rs 67,000.

The seven emerging hospitals represented 22% of group revenue and 25% of group beds. Their occupancy was 47%, pre-Ind AS 116 EBITDA margin was 26%, and ARPOB was Rs 59,000. The five new hospitals accounted for 12% of beds but 4% of revenue, with 27% occupancy, ARPOB of Rs 43,000 and a negative 16% EBITDA margin.

The maturity analysis reports group EBITDA margin of 26% before Ind AS 116, compared with the 31.0% post-Ind AS 116 margin in the quarterly financial performance table. These are different measures and should not be treated as directly comparable.

What operating trends supported Rainbow's revenue growth?

Rainbow's revenue growth coincided with increased inpatient activity and ARPOB across mature and emerging hospitals. Mature-hospital inpatient discharges rose 2% to 22,103 in Q2 FY27, while ARPOB increased 13% to Rs 66,922 from Rs 59,097. Occupancy eased to 54.2% from 54.5%, and average length of stay (ALOS) declined to 2.71 days from 2.78 days.

Emerging-hospital inpatient discharges increased 32% to 8,845 from 6,697, and occupancy rose to 47.2% from 44.7%. ARPOB increased 15% to Rs 59,096, while ALOS declined to 2.34 days from 2.58 days. Operational beds rose to 476 from 419, while capacity beds remained 635.

New hospitals had no Q2 FY26 comparison because they had not commenced operations in the corresponding period. From Q1 FY27, capacity beds increased from 250 to 370 and operational beds from 184 to 232. Inpatient discharges rose 66% to 1,758, occupancy increased to 27.4% from 22.6%, and ARPOB was Rs 42,701 against Rs 42,460.

How did Rainbow's specialty and payor mix change?

Rainbow's specialty mix moved modestly toward women care and in vitro fertilisation (IVF), while pediatrics remained its largest category. Pediatrics represented 65% of revenue including outpatient revenue in Q2 FY27, down from 67% in Q2 FY26. Women care rose to 30% from 29%, and IVF increased to 5% from 3%.

Within pediatric super-specialties, secondary care fell to 47% from 50%, while tertiary care increased to 33% from 30%. Quaternary care increased to 20% from 19%. The presentation does not quantify whether these mix changes affected the group's 31.0% EBITDA margin.

Rainbow's payor profile changed by less than one percentage point. Cash represented 63.3% of revenue including outpatient revenue in Q2 FY27, compared with 63.9% in Q2 FY26. Insurance represented 36.7%, up from 36.1%.

Conclusion

Rainbow delivered 23.2% year-on-year revenue growth in Q2 FY27, but expense growth of 26.8% limited EBITDA growth to 14.2% and reduced EBITDA margin by 250 basis points. Mature hospitals remained the principal revenue contributor, while emerging facilities added volume and new hospitals continued to operate at lower utilisation and a negative pre-Ind AS 116 EBITDA margin.

The next issue to watch is utilisation and profitability at the new-hospital cluster, which reported 27.4% occupancy and a negative 16% EBITDA margin in Q2 FY27. Rainbow Nellore and Rainbow Guntur commenced operations on 1 September, while Rainbow HBR commenced on 1 May, increasing the cluster's capacity to 370 beds in Q2 FY27.