The company will sell its shares in the range of Rs 870-900. At the upper end of the price band, the company is valued at nearly 5.9 times its assets under management (AUM) as on September 30.
‘Big Bull’ Rakesh Jhunjhunwala holds about 8.23 crore or 14.98 per cent stake in Star Health. His investment is set to zoom 5.78 times in the course of 32 months, beginning from March 2019, when he picked stake in the insurer for the first time.
The IPO consists of fresh equity shares up to Rs 2,000 crore and an offer for sale (OFS) of up to 58,324,225 shares. However, ace investor Jhunjhunwala is not participating in the OFS.
Star Health, a standalone health insurer, commands a market share of 15.8 per cent in the segment in terms of size, strong growth in gross written premium and better operational performance, analysts said.
However, most of them are cautiously optimistic over the issue and have recommended it as a long-term buy. Others have recommended investors to skip the issue, citing pricey valuations.
Marwadi Shares and Finance has an avoid rating on the IPO as the issue is expensive as compared to its peers, such as ICICI Lombard and New India Assurance Limited.
“Considering Sep 30, 2021, adjusted BVPS of Rs.90.35 on the post-issue basis, the company is going to list at a P/B of 9.96 with a market cap of Rs 51,796.1 crore,” it added.
The issue is open for subscription till December 2. Buyers can bid for a minimum of 16 shares and in multiples thereof.
Choice Broking said peers it considered for benchmarking Star Health’s valuation operated in the general insurance market as health insurance was one of their various offerings. “We assign a ‘subscribe with caution’ rating for the issue,” it said.
The company has raised a little over Rs 3,217 crore from anchor investors ahead of its IPO. The company has allocated 3,57,45,901 equity shares to 62 anchor investors at Rs 900 apiece, aggregating to Rs 3,217.13 crore.
Star Health has allocated 75 per cent of its shares to institutional buyers, whereas non-institutional investors will get 15 per cent shares in the stake sale. The retail quota is reserved at 10 per cent.
The valuations commanded by Star Health at 5.5x FY21 mcap to gross written premium (GWP), which is in-line with recent deals in the stand alone health insurance space and appears fair considering its positioning, said Angel One, recommending to subscribe it from a long-term perspective only.
Star Health logged a loss of Rs 380.27 crore in six months to September 30, in addition to Rs 825.58 crore loss in FY21. FY20 profit stood at Rs 268 crore.
With the breakout of new variant, Omicron, concerns over further rise in claims may dampen sentiments for the company in near future. However, nothing is concrete as of now and there is lack of clarity over the severity of the new strain.
Star Health and ICICI Lombard both share equally impressive operating metrics, except for the years FY21/22 which is an aberration (due to Covid) for the former one, being focused only on the health segment, said Nirmal Bang Securities.
“We expect Star Health to continue to grow at much higher growth rates while maintaining decent ROE in the post-Covid era,” it added with a subscribe rating on the issue from a long-term perspective.
The Rakesh Jhunjhunwala-backed company has been reporting losses ever since the emergence of Covid-19, led by an increase in claims across the network.
The increase in claims due to the pandemic accounted for 30 per cent of total net paid claims by value in FY21 and 40.5 per cent in the six months ended September 30.
Star Health stands to benefit from positive industry growth trends given its leadership position in the attractive retail health segment, said Religare Broking in its IPO note. The company’s financial performance was impacted in FY21 due to the pandemic.
“It intends to enhance its market leadership by leveraging its strong brand. It aims to enhance existing distribution channels and develop alternative channels,” it added. “It also intends to focus on product innovation and provide value-added services.”
As on September 30, 2021, Star had 779 health insurance branches across 25 states and five union territories. The existing branches were supplemented by 562 sales manager stations (small individual service centres) and 6,892 in-house sales managers.
The company has had a mixed set of financials over the last three years where the company’s GWP has increased over the years while the company suffered a loss in FY21, Swastika Investmart said.
The valuation of the company appears stretched. At the upper price band of Rs 900, it is demanding a marketcap to net premium earned multiple of 10.3x, which is at premium to the peer average, it added with a ‘Subscribe’ rating only for the long term.
Star Health distributes its health insurance policies primarily through individual agents, which accounted for 78.9 per cent of its GWP in FY21. It reported a GWP of Rs 9,348.95 crore in FY21 and Rs 5,069.78 crore in the first six months of FY22.
Given the growth prospects in the retail health insurance sector and the company’s position as the market leader in the sector, the company’s current valuation looks reasonable, said KR Choksey in its pre-IPO note, with a subscribe rating.
