Star Health and Allied Insurance Company Limited, backed by ace investor and billionaire Rakesh Jhunjhunwala, opens for subscription today (November 30).
Star Health on Monday said it has raised a little over Rs 3,217 crore from anchor investors ahead of its IPO.
Price Band
The company plans to raise Rs 7,249 crore from investors, which includes a fresh issue of Rs 2,000 crore and an offer for sale (OFS) of Rs 5,249 crore from existing investors. A price band of Rs 870-900 per share has been set for the issue..
The initial public offer will close for subscription on December 2, 2021.
Proceeds to be used for
The proceeds from the fresh issue will be used towards augmenting the capital base and maintaining solvency levels, Star Health said.
Star Health Insurance Limited is one of the largest private health insurers in India with a market share of 15.8 percent in the Indian health insurance market in fiscal 2021.
Brokerages verdict
Marwadi Shares
Competitive strengths
The largest private health insurance company in India with leadership in the attractive retail health segment.
One of the largest and well-spread distribution networks in the health insurance industry.
A diversified product suite with a focus on innovative and specialized products.
Strong risk management focus with domain expertise driving a superior claims ratio and quality customer service.
Substantial investment in technology and innovative business processes. Consistently demonstrated superior operating and financial performance.
Key Business Strategies
Continue to leverage and enhance market leadership in the attractive retail health insurance segment.
Continue to enhance existing distribution channels and develop alternative channels.
Continue product innovation and provide value added services. ➢ Utilize the digitization of the business to improve operational efficiencies and customer service.
Drive profitability by leveraging scale and further improving financial performance.
Respond to the challenges posed by COVID-19 Pandemic and adapt to the post-COVID-19 environment
Key Risks
The company has incurred losses in fiscal 2021 and the six months ended September 30, 2021 and may incur losses in the future, which could adversely affect their operations and financial conditions and the trading price of the company’s Equity Shares.
The company’s investment portfolio is subject to liquidity risk which could decrease its value.
Rating: Avoid
Considering September 30, 2021, adjusted BVPS of Rs.90.35 on the post-issue basis, the company is going to list at a P/B of 9.96 with a market cap of Rs.5,17,961 million, while its peers namely ICICI Lombard and New India Assurance Limited are trading at P/B of 8.25 and 0.71 respectively. We assign an “Avoid” rating to this IPO as the issue is expensive as compared to its peers.
Choice Broking
Competitive Strengths
The largest private health insurance company in India with leadership in the attractive retail health segment
One of the largest and well spread distribution networks in the health insurance industry and an integrated ecosystem that enables to continue to access the growing retail health insurance market
A diversified product suite with a focus on innovative and specialized products
Strong risk management focus with domain expertise driving a superior claims ratio and quality customer service
Substantial investment in technology and innovative business processes
Consistently demonstrated superior operating and financial performance
An experienced senior management team with strong sponsorship
Risk and concerns
Unfavorable government policies and regulations
Continued risk from the COVID-19 pandemic
Unfavorable movement in the interest rates
Inability to manage hospital network and distribution channels
Difficulty in improving and maintaining the profitability
Competition
Peer comparison
Macros of the health insurance segment is very positive. Moreover, because of pandemic, awareness of the health insurance is at all time high.
Star Health being a dominant player focusing on the retail health insurance is well placed to benefit from the expansion in the market. Pandemic despite positively impacting business growth, has impacted the profitability severely.
In future occurrence of new virus wave or emergence of new variant will be a concern for the profitability. However, the risk will be lower as compared to levels witnessed during H1 FY22.
The peers considered for benchmarking the valuation operate in general insurance market and health insurance is one of their various offerings. Thus these can be considered as proxy peer.
Rating: Subscribe with Caution
At higher price band of Rs. 900, Star Health is demanding a MCAP-to-net premium earned multiple of 10.3x, which is at premium to the peer average. Moreover, the demanded valuations is at elevated premium to recent capital issuance.
