Ace investor Rakesh Jhunjhunwala, partner in Rare Enterprises, is also the promoter of Star Health and Allied Insurance Company Limited, which made its stock market debut on Friday, December 10, at a discount to its sale price. Moneycontrol’s Nisha Poddar caught up with Jhunjhunwala to hear his insights on value creation by Star Health and his views on equity market investments. Edited excerpts:
Star Health’s listing is a big milestone for you personally; you are the company’s promoter. What does this mean to you?
It is part of life. We invested about 30 months back and now it is listed and I am hopeful it will do well. As a promoter of an insurance company I am bound to provide capital adequacy to it. Responsibility of being a promoter of insurance company goes far beyond the normal promoter requirements.
Over the last two years, health insurance has gained in terms of prominence; it has also taken a lot of the load of COVID-19 as well. What do you suggest will be the long-term value creation metrics for Star Health?
...just about 15% of the amount people spend on healthcare in India is through the means of insurance. In advanced countries, about 80% is paid by insurance. So it's a nascent industry in India. And Star Health has got a 31% market share in retail health insurance in India. I think this kind of domination in any industry which is poised to grow is very rare. So I remain optimistic and hopeful and that is why I haven't sold any shares in the issue.
Star Health’s was a fiercely competitive bid process when you bought it and you have made returns on the valuation. Give us some details about the kind of growth versus profitability balance that this company is going to see because that will be an important aspect for investors who bet on risk-reward parameters.
It was an intensely complicated process. There was a dispute between the promoters who were to sell to us, and I think it took 18 months for us to complete the transaction. Growth without profitability is no purpose, so the essential idea is to earn a profit, and COVID-19 is a once-in-a-lifetime situation. I don't need think it will occur again. In my opinion, it's all dead, except the noise.
COVID-related losses have burdened the health insurance sector and uncertainty has cropped up because of the Omicron variant. Since the time you issue launched this issue to now, the world is slightly different in terms of uncertainty as well as market volatility. Do you think that has a bearing on the valuation of Star Health?
Not in my mind, but surely near-term factors do affect people's perception of valuation. And it has affected the valuation to some extent. But I see the price at more than Rs. 900.
How do you see the growth momentum as a promoter? What will be key areas to watch out for in terms of management and operations?
(I have) full confidence in the management. I'm not a director on board, although I'm a promoter. I think we have an excellent management and excellent leader. So why should I interfere when you know things have been managed well. I have no worries on that count. There's a good succession plan also. I think time will bear us out. I hope to do well. And that's why I have retained my shareholding.
Insurance is a very competitive area. Health insurance is something that even the big insurance companies that do not have a big thrust in this space are going to get into. How do you manage this intense and fierce competition; what will Star Health Insurance do right so that in the trade-off, it is a bigger bet?
We will face the competition as it comes. We have the largest network, we have the lowest cost-to-income ratio. Size gives us an advantage. I feel health insurance in India is at a nascent stage. I think it will grow 15 -20% for the next 15 years.
In the next five years, how do you see the potential growth in this sector?
I know we have a dominant share in retail insurance, which is the most profitable part of of health insurance. We have a great team and we have cost advantages. And we are preparing ourselves as an organization for a much larger role.
As an investor and a promoter, what are you betting on, especially since you didn't participate in the offer for sale (OFS)?
It's not very different from me holding any other investment. We are in a space which has great potential, we have leadership. We have a very good management team. So I see no reason why we should not grow and be profitable, and give returns to investors.
Now that it's in the public market, profitability will be the cornerstone of the management thesis for this company. Profitability will be one main thrust for the management and growth versus profitability. How will they balance this?
The whole purpose of growth is profit. Our aim is profitable growth.
Over the years, you have built your private equity portfolio and strengthened it. Many of the companies are also ripe for an initial public offering. Metro Shoes is coming up next. How do you see the IPO valuations picture in the light of recent market volatility where the Euro world has changed in the last one month or so?
I am not participating in any of the public offerings.
You're not participating because you don't agree with the kind of valuations that it's presenting. That's what you are saying. Where lies this disconnect between an investor's expectation as well as the valuation that is being put forth?
I don't know what investor expectations are. I am not a merchant banker who's going to make all these valuations. So I don't why people are valuing at what prices. I'm not selling in those issues.
Now markets have been extremely fast paced; More uncertainty is coming in from time to time. How do you see the trajectory for 2022 in your vision for the market in India?
I am bullish. I think we will see a positive market next year also.
Some of the big ones would be the government's disinvestments and also the Life Insurance Corporation of India (LIC) IPO. What kind of an impact do you see from those important events?
I think LIC will bring lot of new investors to the market.
PSU (public sector undertaking) banks were a big thrust area for you. Now, it looks like the government is moving fast on the disinvestment track. What is your view on this particular basket?
I am very bullish on public sector banks. I think IDBI Bank should be disinvested, that's what I hear in the press. Even if they are not disinvested, they will do very well.
Any others in that basket?
Not to my knowledge
What about real estate, which has picked up fast?
I am bullish on that as well. The cycle has changed now and fresh supply is there and now with the economy improving and the markets booming, there is demand for real estate and interest rates are coming down.
There was a lot of euphoria around metals and steel
I am very bullish on steel.
Anything on the avoid list
Not really
Tata Group has been one of your big mainstays. Are there more opportunities in that group?
I am fully invested in that group and if opportunities come, then I will grab them.
Any specific sectors that you are more keen on?
I have made a lot of private equity investments
Please tell us about Akasa Air. How is its model is going to be better than others?
I have a good management team and we are a low-cost carrier. We hope to start by May-June .
Any more details on the low-cost airline structure?
The fact that everyone in the management has an equity stake in the company is the reason I feel optimistic. We have a very good, experienced team.
What is the sector of your choice?
I don't buy sectors. I eye companies. If there's any sector which has good company, well placed, then I will invest.
What to watch out for in 2022? Do you think some of the external factors like the Federal Reserve taper, liquidity going down could impact our market dynamics?
I don't think so because even if there is FII (foreign institutional investor) selling, it will be absorbed by local money. In India, profit to GDP was 2% and in America it was 11%. India is different than most countries. Maybe you will see consolidation, but I don't see any crash or fall.
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