Rakesh Jhunjhunwala-backed Star Health sees tepid debut, stock lists at a 6% discount

The portions reserved for qualified institutional buyers and retail investors were fully subscribed, but the part set aside for non-institutional investors and employees was majorly undersubscribed. As a result, the company reduced its offer-for-sale size to Rs 4,400 crore from Rs 5,249 crore earlier and hence the total issue size was down to Rs 6,400 crore, including fresh issue of Rs 2,000 crore.

The price band for the offer was Rs 870-900 per equity share.

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Most of analysts had given a subscribe rating to the issue, given the expected growth in the insurance industry amid underpenetration, though they were worried on its valuations.

“At a higher price band of Rs 900, Star Health is demanding a market cap-to-net premium earned multiple of 10.3x, which is at a premium to the peer average. Moreover, the demanded valuation is at an elevated premium to recent capital issuance. Thus, we assign a ‘subscribe with caution’ rating for the issue,” said Choice Broking.

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“Macros of the health insurance segment is very positive. Moreover, because of the pandemic, awareness of the health insurance is at an 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,” it said.

“The pandemic, despite positively impacting the business growth, has affected the profitability severely. In future, the occurrence of a new virus wave or emergence of a new variant will be a concern for the profitability. However, the risk will be lower as compared to levels witnessed during H1 FY22.”

SMC Global has given two out of five ratings to the issue. “Star Health is one of the largest health insurance companies in India. It is strategically focused on the retail health market segment and had a retail health gross written premium of Rs 8,215.09 crore and Rs 4,339.92 crore in Fiscal 2021 and the six months ended September 30, respectively. However, it is suffering severe setbacks since the pandemic and fared poorly for FY21 and H1-FY22. Based on its current financial status, this issue appears aggressively priced,” it reasoned.

Incorporated in 2006, Star Health is one of the largest private health insurers in India with a market share of 15.8 percent in fiscal 2021, primarily focusing on the retail health and group health segments which accounted for 89.3 percent and 10.7 percent of the company's total GWP (gross written premium) for fiscal 2021.

The company mainly distributes policies through individual agents and also through banks and other corporate agents. As of September 2021, its network distribution included 779 health insurance branches across 25 states and five Union Territories. Star Health has also built one of the largest health insurance hospital networks in India with more than 11,778 hospitals.

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