Health insurer Star Health & Allied Insurance Company has launched its initial public offering (IPO) today— Nov 30. It will be the sixth insurance company to go public in India. In this article, learn more about Star Health and its IPO.
Company Profile – Star Health & Allied Insurance Company Ltd
Star Health & Allied Insurance Company Ltd is one of the largest private health insurers in India, with a market share of 15.8% as of FY21. It primarily focuses on the retail health and group health segments, which accounted for 89.3% and 10.7%, respectively, of its total gross written premium (GWP) in FY21. [GWP is the total premium (both direct and assumed) written by an insurer before deductions and remitting commissions].
Coverage Options Offered by Star Health:
- Retail health insurance— Paid for by private individuals or families through out-of-pocket expenses or private insurance.
- Group health insurance— Paid for by employers, typically in the form of company health insurance plans. Such policies may involve co-payments by employees.
- Government health insurance— Paid for by the government, typically in the form of central or state government health insurance
- Personal accident
- Travel insurance
The Chennai-based company distributes its policies through individual agents and corporate agents. As of Sept 31, 2021 (Q2 FY22), its network distribution included 779 health insurance branches across 25 states and 5 union territories (UTs) in India. Star Health has also built one of the largest health insurance hospital networks in our country, with more than 11,778 hospitals.
Star Health’s promoters include ace investor Rakesh Jhunjhunwala and private equity firms Westbridge Capital, Safecorp Investments India LLP.
About the IPO
Star Health’s public issue opens on November 30 and closes on December 2. The company has fixed Rs 870-900 per share as the price band for the IPO.
The fresh issue of shares (of the face value of Rs 10 each) aggregates to Rs 2,000 crore. The IPO also includes an offer for sale (OFS) of 5.8 crore shares by promoters and early investors. Individual investors can bid for a minimum of 16 equity shares (1 lot) and in multiples of 16 shares thereafter. You will need a minimum of Rs 14,400 (at the cut-off price) to apply for this IPO. The maximum number of shares that can be applied by a retail investor is 208 equity shares (13 lots).
Star Health will utilise the net proceeds from the IPO to augment/boost its capital base and maintain solvency levels. The company also aims to benefit from listing in terms of enhancing visibility and brand image.
The total promoter holding in the company will decline from 66.22% to 58.42% post the IPO.
Financial Performance
Star Health has been facing setbacks amidst the Covid-19 pandemic and fared poorly in FY21 and even the half-year ended September 2021 (H1-FY22). The company reported a net loss of Rs 825.6 crore in the financial year 2020-21 (FY21), compared to a net profit of Rs 268 crore in FY20. Total income stood at Rs 7,568.8 crore in FY21, up 36.3% year-on-year (YoY). Star Health settled and paid 1.5 lakh Covid-19 claims amounting to Rs 1,528.6 crore last year.
The health insurer had a solvency ratio of 1.52 as of September 2021, compared to the Insurance Regulatory & Development Authority of India’s (IRDAI) prescribed level of 1.50. The solvency ratio tells us whether an insurance company has the money to settle all claims at the time of liquidation. Higher solvency ratios indicate more capability of paying insurance claims during uncertain times, which gives more confidence to an insuree. To learn more about vital ratios related to the insurance sector, click here. The company had Rs 650 crore of outstanding debt liabilities as of Q2 FY22.
The company posted a 27.5% CAGR growth in the number of policies issued in FY21. It also reported a 31.4% CAGR increase in gross premiums, which stood at Rs. 9,349 crore in FY21. Star Health stands out among other standalone health insurers in terms of size, strong growth in gross written premium, and better operational performance.
Risk Factors
- The Covid-19 outbreak has severely affected the company’s business and operations. Any potential future waves and effects of the Covid-19 pandemic on customers in terms of infection and need for hospitalisation will result in higher claim payments.
- Any negative publicity could have an adverse impact on Star Health’s business and financial condition.
- The unavailability or inaccuracy of data provided by customers could limit the functionality of insurance products and disrupt business.
- The failure to develop and grow its distribution network of agents in a cost-effective manner could harm its overall operations. Moreover, the inability to maintain relationships with its existing hospital network could negatively impact its financial performance.
- There are outstanding legal proceedings involving Star Health, its directors, and promoters.
- Increased competition in the insurance sector could lead to aggressive pricing and adversely impact the company’s business.
- Star Health will be forced to stop transacting any new business or change its strategies if it does not meet the solvency ratio requirements prescribed by IRDAI.
IPO Details in a Nutshell
The book-running lead managers to the public issue are Axis Capital, BofA Securities India, Citigroup Global Markets, CLSA India, Credit Suisse Securities (India), and more. Star Health & Allied Insurance Company Ltd had filed the Red Herring Prospectus (RHP) for its IPO on November 19. You can read it here. Out of the total offer, 75% is reserved for Qualified Institutional Buyers (QIBs), 15% for Non-Institutional Investors (NIIs), and 10% for retail investors.
Ahead of the IPO, Star Heath raised Rs 3,217.13 crore from 62 anchor investors. The marquee investors include the Monetary Authority of Singapore, The New Economy Fund, Baillie Gifford Pacific Fund, Abu Dhabi Investment Authority, Morgan Stanley, Edelweiss, IIFL Special Opportunities Fund, etc.
Conclusion
According to a report from CRISIL Research, the retail health market segment is expected to emerge as a key growth driver for the overall health insurance industry in India. Factors such as low penetration of health insurance and high out-of-pocket expenses for healthcare costs would ultimately lead to better business for insurance firms. Moreover, only 10% of the Indian population has insurance policies outside of government plans. Star Health could benefit from the growth in this sector with its diversified product portfolio, which has a strong focus on innovation and specialised products.
However, the company has been reporting losses ever since the emergence of the Covid-19 pandemic (due to higher claims). A further impact of the pandemic could lead to higher claims. Moreover, an increase in competition could negatively impact its profitability. Star Health will be directly competing with leading players such as ICICI Lombard General Insurance Company and New India Assurance Co. once it gets listed.
Based on negative earnings and past losses, the issue price seems to be aggressively valued. Star Health’s IPO shares are trading at a Grey Market Premium (GMP) of just Rs 10 in the unofficial market. Before applying to this IPO, wait to see if the portion reserved for institutional investors gets oversubscribed. As always, consider the risks associated with the company and come to your own conclusion.
What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.