The Star Health and Allied Insurance Company’s initial public offering (IPO) hit the market for subscription on November 30 and will remain open till December 2. The company is planning to raise Rs 7,249 crore from this IPO. Out of the total, the Star Health IPO comprises fresh issue of equity shares worth Rs 2,000 crore. The remaining part is an offer for sale by promoters and existing shareholders.
The lot size of the IPO is a minimum of 16 shares. To apply for one lot, you need to pay Rs 14,400 at the higher price band of Rs 900.
Rakesh Jhunjhunwala-backed Star Health is the largest standalone health insurance company in India with a market share of 15.8 per cent. The company commands a retail share of 31.3 per cent, it said in its IPO note. It primarily focuses on the retail health insurance segment with 89 per cent mix with its network distribution of 779 health insurance branches across 25 states and five Union Territories in India.
Star has one of the largest health insurance hospital networks in India with more than 11,778 hospitals. Its comprehensive health insurance product suite insured 20.5 million lives in FY21 in the retail and group health segments.
What Works For Star Health IPO?
Star Health stands out among all competitors for its focus on the profitable retail segment. It has capitalised on the inherent higher growth in the retail health insurance segment and grew at the rate of 31 per cent compounded annually over FY18-21 compared to standalone retail health insurance segment growth of 25 per cent.
“STAR being the leader in fast growing retail health insurance segment with a market share of 31.3 per cent offers an attractive opportunity to participate in this granular (retail health mix at 88 per cent), high growth business. We view Star’s valuations at 8.2-times September 2021 book value favourably in comparison to similar levels for ICICI Lombard, as we expect Star to continue to grow at much higher growth rates while maintaining decent ROE (return on equity) in the post-Covid era. We recommend subscribing to the issue from a long-term perspective,” says Nirmal Bang in its IPO note.
Other broking houses have a similar view about the company. “Star Health stands out among other standalone health insurers (SAHI) in terms of size, strong growth rates (32 per cent Gross Written Premium GWP CAGR over FY18-21) and better operational performance which is reflected in pre-Covid numbers for the company (about 93 per cent combined ratio). The valuations commanded by Star Health at about 5.5-times FY21 Mcap/GWP, are in line with recent deals in the SAHI space and appears fair considering its positioning,” says Angel One in its IPO note.
The Indian health insurance market continues to be underpenetrated, with a health insurance penetration of only 0.36 per cent of the GDP in 2019, compared to the global average of approximately 2 per cent of the GDP. Several demographic factors, including increasing life expectancy and population growth, as well as the high portion of out-of-pocket expenses as a percentage of total healthcare expenditure by patients are driving the need for healthcare services and the growth in the health insurance industry in India. “Star Health stands to benefit from positive industry growth trends given its leadership position in the attractive retail health segment. It has one of the largest and well-spread distribution networks in the health insurance industry and an integrated ecosystem,” says Religare Broking in its IPO note.
What Doesn’t Work For Star Health IPO?
The health insurance business is exposed to the risk of catastrophes such as pandemics or other catastrophic events which could lead to losses. Many countries the world over are witnessing repeated Covid waves resulting in higher hospitalisation. Star’s business is directly impacted by Covid as witnessed in FY21 and the first half of FY22 when the company posted losses. The emergence of subsequent Covid waves in India shall again impact the company and delay the recovery in earnings.