Rakesh Jhunjhunwala-backed Star Health and Allied Insurance Company is likely to debut on the bourses with a discount on December 10, though there could be some buying later in the day, experts feel.
A muted IPO subscription and higher valuation dampened the sentiment at the IPO desk, which may hit the listing price of the stock.
The health insurer’s maiden public issue failed to cheer the street with only 79 percent subscription during November 30-December 2 but the portion set aside for qualified institutional buyers was fully subscribed (1.03 times). The IPO, other than the fresh issue, has to get at least 75 percent subscription and the QIB portion has to get at least 90 percent subscription, then the issue can sail through.
After the issue closing, the company has reduced the offer size to the extent of undersubscribed portion. As a result, the final issue size has come down to Rs 6,400.44 crore from Rs 7,249 crore, including fresh issue of Rs 2,000 crore and an offer-for-sale of Rs 4,400.44 crore as against Rs 5,249 crore earlier.
The portions for non-institutional investors and employees were subscribed 19 percent and 10 percent, while the retail portion was booked 1.1 times. The undersubscription clearly indicated that most of investors have got almost full subscription.
“We expect the listing at a discount of 10 percent. Below that, buying will emerge from anchor investors who would like to reduce the cost of acquisition. IPO applicants have got almost full subscription. Short-term traders looking for quick gain will be disappointed as we do not expect the stock to trade at a premium in the foreseeable future,” said Abhay Agarwal, Founder at Piper Serica.
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Prashant Tapse, Vice-President (Research) at Mehta Equities, feels the same way. Considering the volatile market conditions and lower-than-expected subscription demand to its IPO, the listing sentiment might be affected, he said.
“Investors can expect discounted listing as risk concerns weigh more over positive investment rationales. At the upper price band, the ask valuation seems to be on the higher side and nothing left on table to allotted investors.”
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The company has fixed an IPO price at Rs 900 per share. The undersubscription of employees’ reserved portion is also a negative factor for its listing, experts feel. The offer included a reservation of 1,12,592 equity shares for the employees who got a discount of Rs 80 per share to the final offer price of Rs 820 per share.
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“The reserved portion of non-institutional investors (NII) and employees was undersubscribed which is not a positive indication for the firm. Given the number of times the IPO has been subscribed to, the grey market premium (GMP), and the recent listing of IPOs, we may see the Star Health issue open at a discount,” said Gaurav Garg, Head of Research at CapitalVia.
In the grey market, Star Health shares traded at Rs 840, a discount of Rs 60 or 6.7 percent, compared to the final offer price of Rs 900 per share, as per IPO Central. IPOWatch and IPOBAZAR also indicated a discounted price for Star Health in the grey market.
The grey market is an unofficial platform, where trading in the IPO share begins with the announcement of the price band and continues till the listing of shares on the bourses.
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Astha Jain, Senior Research Analyst at Hem Securities, also expects the listing price to be lower than the issue price in the beginning but she feels the stock might recover later.
Star Health claims to be the largest private health insurer in India with a market share of 15.8 percent. In FY21 and the six months ended September 2021, it had total gross written premium of Rs 9,348.95 crore and Rs 5,069.78 crore, respectively.
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Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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