Rakesh Jhunjhunwala-backed Star Health trading at discount in grey market. How will it impact listing?

The retail portion was subscribed 1.1 times, but non-institutional investors and employees stayed away from the offer, with their portions subscribed only 19 percent and 10 percent, respectively. Employees did not subscribe even with a discount of Rs 80 per share.

The offer-for-sale portion of the Rs 7,250-crore IPO alone was about Rs 4,400 crore.

“Literally 60 percent of the money raised would go back to the promoters and not be reinvested into the company. This made the potential investor base sceptical about the real reason for raising funds and their utilisation,” said Sonam Srivastava, founder of Wright Research, an investment advisory firm in Mumbai.

Expensive valuations, recent losses driven by high COVID-related claims and better prospects in other IPOs may have been the factors for the disappointing response even as other recent IPOs have seen stellar subscription figures.

Also read: Tega Industries, MapmyIndia trading at premium in grey market, here's how other IPOs are doing

Investors are now worried if Star Health could see a Paytm-like listing, which had debuted with a 9-percent discount and then plunged more than 40 percent in the first two trading sessions.

Even as experts believe that Star Health could see a poor listing, it will not see a carnage like Paytm did. “It is possible that the listing will be weak due to low subscription, however, it cannot be compared to Paytm, given the differences in business parameters,” said Vinod Nair, Head of Research at Geojit Financial Services.

Swastika Investmart’s Head of Research Santosh Meena agrees. “The listing is expected on a poor note. However, the long-term outlook for the industry and Star Health Insurance is promising. Therefore, we can expect buying interest at lower levels,” he said.

Also read: Medplus Health Services IPO to open on December 13, price band set at Rs 780-796

Meanwhile, Rajnath Yadav, Research Analyst at Choice Broking said he expects a better listing than what the grey market is indicating. "Considering the business potential and the dominant market share, we have assigned a “subscribe for long term” rating for the issue. Assuming no major impact from the new variant, we feel that the IPO listing will be better than what is indicated from the grey market activities," he said.

Nair is of the view that the insurance industry’s medium-to-long-term growth will remain intact. “The company’s short-term business has been impacted due to COVID and the need for funds to sustain capital. We can expect stability in business during 2022. Moreover, it has strong penetration and brand value in the retail segment,” he said.

Hem Securities Head of PMS Mohit Nigam, however, didn’t seem so sure. “The issue is expected to list on a discount and amid volatile broader market, selling pressure could further correct the stock price, mirroring listing day performance of Paytm,” he said.

The share allotment for the offer is likely to be decided today. Refunds will be initiated to unsuccessful bidders by December 8 and successful bidders will get shares in their demat accounts on December 9.