Rakesh Jhunjhunwala-backed Star Health IPO to open tomorrow; here's all you need to know

The initial public offering (IPO) of Star Health and Allied Insurance Company is slated to hit the primary market on November 30. The company has fixed a price band of Rs 870-900 for the initial share sale. The public offer will close on December 2, 2021. The company is owned by a consortium of investors including Safecrop Investments India, Westbridge Capital and ace equity investor Rakesh Jhunjhunwala. Here are the key things you should know before subscribing to the IPO.

About the company 

Incorporated in 2006, Star Health has grown into the largest standalone health insurance company in India with a market share of 15.8 per cent. Its comprehensive health insurance product suite insured 20.5 million lives in FY21 in retail health and group health, which accounted for 89.3 per cent and 10.7 per cent, respectively, of its total health gross written premium (GWP). It distributes its health insurance policies primarily through individual agents, which accounted for 78.9 per cent of its GWP in FY21. Its distribution network has grown to 779 health insurance branches spread across 25 states and 5 union territories in India.

About the issue

At the upper price band, the company is aiming to raise Rs 7,249.20 crore. The issue is a combination of fresh and offer for sale (OFS). Star Health will not receive any proceeds from the OFS part of the issue. Net proceeds from the fresh issue will be used to augment the capital base, thereby maintaining the solvency levels of the company. In the last 6-12 months, the company has issued shares to the investors at significant discount to the issue price.

Grey market premium

Shares of the company are available at a premium of Rs 10-12 in the unlisted market. Abhay Doshi, founder, Unlisted Arena told Business Today that the premium of Star Health declined sharply from Rs 150 to Rs 10 in a week. Meanwhile, the secondary market also witnessed a significant correction last week. The 30-share BSE Sensex declined 2,528 points to 57,107 on November 26 from 59,636 on November 18.

“From Fiscal 2019 to fiscal 2021, their company’s retail health GWP grew at a CAGR of 32.5 per cent which is exceptional. Also, they have a dominating market share of 31 per cent in the retail health segment. The COVID-19 pandemic has been a two-way sword for the health insurance companies as undoubtedly, it has increased awareness amongst people for health insurance which will increase GWP in long run but in short term due to the pandemic, the claims have risen exceptionally high which led the company to losses.” Doshi said, adding the issue looks aggressively priced which may keep the IPO away from the fancy.

Dinesh Gupta, co-founder, Unlisted Zone also said, “Shares of Start Heath are trading at Rs 10-12 in the unlisted market.”

Brokerages' view

Analysts on Dalal Street hold a mixed view on the initial public offering. Choice Broking has given a ‘Subscribe with caution’ rating to the issue. “The peers considered for benchmarking the valuation operate in the general insurance market and health insurance is one of their various offerings. Thus, these can be considered as a proxy peer. At a higher price band of Rs 900, Star Health is demanding a market cap-to-net premium earned multiple of 10.3 times, which is at premium to the peer average. Moreover, the demanded valuations are at an elevated premium to recent capital issuance,” the brokerage said.

On the other hand, Marwadi Shares and Finance has an ‘Avoid’ rating on the public offer. “Considering the September 30, 2021 adjusted book value per share of Rs 90.35 on post issue basis, the company is going to list at a price-to-book (P/B) of 9.96 with a market cap of Rs 51796.1 crore, while its peers namely ICICI Lombard and New India  Assurance Limited are trading at P/B of 8.25 and 0.71 respectively. We assign an “Avoid” rating to this IPO as the issue is expensive as compared to its peers,” noted Marwadi Shares and Finance.