Medi Assist Healthcare IPO: Should you subscribe to Rs 1,171.58 crore issue?

A third-party administrator is an organization that processes health insurance claims for insurance companies and provides services such as policy administration, customer service, and network management, among others. TPAs are a link between the insurer, healthcare service provider, and the policyholder.

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Medi Assist has developed a pan-India healthcare provider network that comprises 18,754 hospitals across 1,069 cities and towns and 31 states (including union territories) in India and a network across 141 countries globally, as of September 30, 2023.

Offer details

The Bengaluru-based company plans to raise Rs 1,171.58 via offer-for-sale of 2.8 crore shares. The price band for the issue, which will close on January 17, has been fixed at Rs 397-418 per share. The basis of the allotment of IPO shares will be finalised by January 18 and the successful investors will get shares in their demat accounts by January 19. The stock is expected to be listed on bourses on January 22.

Since the issue is an OFS, the entire proceeds will go to the selling shareholders and the company will not receive any money. Promoters Vikram Jit Singh Chhatwal, Medimatter Health, and Bessemer India Capital Holdings II hold 67.55 percent shareholding in Medi Assist, while the total promoter shareholding is 77.14 percent. Medimatter Health, which has a 27.33 percent stake in Medi Assist, is owned by Vikram Jit Singh Chhatwal and his wife Savitri Choudhury.

Anchor investors

Ahead of the IPO, Medi Assist mobilised Rs 351.5 crore through its anchor book issue. Marquee names in the list of anchor investors included Nomura Trust, Goldman Sachs, Ashoka Whiteoak, Pinebridge Global Funds, Troo Capital, and HSBC.

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Further, HDFC Mutual Fund, Kotak Mahindra Trustee, Aditya Birla Sun Life Trustee, SBI Life Insurance Company, Mirae Asset, Canara Robeco Mutual Fund, Tata Mutual Fund, Sundaram Mutual Fund, Bandhan Mutual Fund, Edelweiss Trusteeship, Bajaj Allianz Life Insurance Company, Max Life Insurance Company and SBI General Insurance Company among domestic investors also participated in the anchor book, which was launched for a day on January 12.

Financials

Medi Assist reported an 18.7 percent on-year growth in consolidated net profit at Rs 75.31 crore on strong topline and operating margin performance for the year ended March 2023. Revenue from operations during the same period grew by 28.2 percent to Rs 504.9 crore, while EBITDA (earnings before interest, tax, depreciation, and amortisation) increased by 30.8 percent to Rs 119.35 crore with margin expansion of 40 bps at 23.6 percent for the year.

However, the net profit for the six months ended September FY24 fell 34 percent year on year to Rs 24.3 crore due to an exceptional one-time cost amounting to Rs 21 crore on account of employee incentives being contributed by the selling shareholders towards eligible employees of the company and one subsidiary.

The topline in H1FY24 remained strong with revenue at Rs 302 crore growing 24 percent over a year-ago period. EBITDA in the same period rose by 7.6 percent to Rs 62.4 crore and the margin dropped 315 bps to 20.66 percent compared to the corresponding period of the last financial year. During FY21-23 PUM (premium under management) increased at 35.7 percent CAGR to Rs 14,574.6 crore in FY23.

Subsidiaries Medi Assist TPA, Medvantage TPA, and Raksha TPA contributed 92.98 percent to the company's revenue from contracts with customers in the first half of FY24.

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The company derives a significant portion of its revenues from a limited number of clients. For the financial years 2021, 2022, and 2023, and the six months ended September 30, 2023, the five largest clients by revenue contributed 78.23 percent, 78.95 percent, 77.97 percent, and 71.03 percent of total revenue from contracts with customers, respectively.

Valuation 

At the upper price band, Medi Assist is valued at a P/E ratio of 38.2x of its FY23 earnings with a market cap of Rs 2,878.3 crore post-issue of equity shares. Further, there are no listed companies in India that engage in a business like that of Medi Assist.

As of September 30, 2023, Medi Assist reported an RoE of 5.82 percent and a RoCE of 11.23 percent. PAT margin stood at 7.77 percent and EBITDA margin at 20.66 percent in the same period.

Should you subscribe to Medi Assist Healthcare IPO?

Anand Rathi: Subscribe for long-term

Medi Assist Healthcare Limited is one of the most established third-party administrators in the country. The company has tie-ups with around 9,500 employees in the country. “We believe that valuations of the company are fairly priced and recommend a ‘Subscribe-Long Term’ rating to the IPO,” said analysts at Anand Rathi.

Choice: Subscribe

“Considering Medi Assist’s dominant share in the TPA market, consistent financial performance, healthy cash flow generation, and dividend payout, we assign a ‘Subscribe’ rating for the issue,” said analysts at Choice Equity Broking.

Mehta Equities: Subscribe for long-term

“Given the low penetration of insurance in India and expected growth from the current 16 percent to 33 percent in the next 5 years, we feel Medi Assist is well positioned as a dominant TPA player to tap the upcoming growth, and the rising awareness in the healthcare business is the tailwind for the whole sector. We recommend investors to ‘Subscribe’ with a long-term perspective only,” said Rajan Shinde, Research Analyst at Mehta Equities.

Swastika Investmart: Neutral

Swastika Investmart holds a ‘Neutral’ rating on the issue. “Medi Assist concentrates a significant portion of its revenue on a limited number of clients, and its subsidiaries play a crucial role in its overall performance, introducing dependencies. Additionally, the offering is a pure OFS with a premium valuation that warrants a cautious approach,” said Shivani Nyati, Head of Wealth, Swastika Investmart.

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