Star Health and Allied Insurance Company IPO – Should you subscribe to it?

The price band for the offer has been fixed at Rs 870-900 per share. Investors can bid for a minimum of 16 shares (Rs 14,400) and in multiples of 16 shares thereafter. The maximum investment allowed for retail investors is Rs 1,87,200 for 13 lots (208 shares).

The allotment of shares will be decided by December 7 and unsuccessful bidders will get refunds in their bank accounts by December 8. Shares will get credited to the demat accounts of successful bidders by December 9.

Trading of the shares on the BSE and the National Stock Exchange will start on December 10.

Also read: Rakesh Jhunjhunwala-backed Star Health raises Rs 3,217.13 crore from anchor investors, ahead of IPO opening

Company Brief

Incorporated in 2006, the Rakesh Jhunjhunwala-backed company had a 15.8 percent share in the overall health insurance market and a 31.3 percent share in the retail health insurance segment in FY21.

Star Health offers a range of coverage options for retail health and group health, which accounted for 87.9 percent and 10.5 percent, respectively, of the total gross written premium (GWP) in FY2. Personal accident and overseas travel cover accounted for the remainder.

The company’s GWP was Rs 5,069.78 crore in the first half of FY22 and Rs 9,348.95 crore in FY21.

Brokerage views

Angel One highlights the strengths of the company as: (a) the largest private health insurance company in India with leadership in the retail health segment, (b) one of the largest and most well-spread distribution networks in health insurance and an integrated ecosystem, (c) a diversified product suite with a focus on innovative and specialised products, and (d) experienced board and senior management team.

The brokerage said a fresh Covid-19 wave could increase insurance claims and an increase in competition could adversely impact the company’s performance.

It recommends a “Subscribe from a long-term perspective only.” The “valuations commanded by Star Health at ~5.5x FY21 Mcap/GWP are in-line with recent deals in the standalone health insurers space and appear fair considering its positioning,” it said.

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“Compared to other health insurance segments, retail health insurance segment is one of the most attractive, mainly due to lower penetration, density and claims ratio as well as its higher premium per person in India,” Choice Broking said in a report.

Historically, an outbreak of any disease across the globe enhances awareness of health insurance and is an opportunity for health insurers. Currently, awareness of health insurance is at an all-time high and is expected to benefit the sector, although higher claim pay-outs could affect them in the short term.

India’s health insurance market is in the early stages and is one of the most underpenetrated markets globally, which is indicative of growth potential in the sector.

“The pandemic has led to deterioration in the operating metrics of the company,” Choice Broking said.

According to the brokerage, the company faces risks from unfavourable government policies and regulations, a fresh Covid wave, inability to manage hospital networks and distribution channels, and unfavourable movement in interest rates.

Choice Broking assigns a “Subscribe with Caution” rating for the issue, considering that at Rs 900 a share, Star Health is demanding a market cap-to-net premium earnings multiple of 10.3x, which is at a premium to the peer average.

Marwadi Financial Services recommends that investors “Avoid” this issue because it is expensive compared to its peers.

“Considering the Sep 30, 2021 adjusted BVPS (book value per share) of Rs. 90.35 on post-issue basis, the company is going to list at a P/B (price/book value) of 9.96 with a market cap of Rs 51,796 crore, while its peers namely ICICI Lombard and New India Assurance are trading at P/B of 8.25 and 0.71 respectively,” Marwadi Financial Services said in its report.

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