On Thursday, HSBC issued a new rating for Rainbow Children’s Hospitals (RAINBOW:IN), downgrading the stock from Buy to Hold. The firm also adjusted the price target to INR1,290.00, a decrease from the previous INR1,500.00. This change comes after a recent review of the company's financial performance and growth prospects.
The downgrade reflects HSBC's assessment that while Rainbow Children’s Hospitals maintains a positive long-term growth outlook, there are immediate challenges that may constrain its earnings before interest, taxes, depreciation, and amortization (EBITDA) margins. The firm anticipates that upcoming costs will likely keep these margins within a certain range for the near to medium term.
HSBC has noted that the current growth drivers for Rainbow Children’s Hospitals are already factored into the stock price. The firm is looking for new catalysts that could potentially drive the stock price higher. Additionally, HSBC pointed out that there are potential downside risks, such as delays in the Gurugram project and the time it takes for new units to reach breakeven.
After the first quarter, HSBC has reduced its earnings per share (EPS) estimates for Rainbow Children’s Hospitals for fiscal years 2025 to 2027 by 1.2% to 9.1%. This revision is primarily due to the anticipated costs of scaling up operations at new hospitals.
The revised discounted cash flow (DCF)-based target price of INR1,290, down from INR1,500, suggests a modest 5.6% upside from the current level. This adjustment in price target and the downgrade to a Hold rating reflect HSBC's current position on the stock amidst the company's financial and operational developments.
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