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Star Health Insurance IPO: Star Health IPO Date, Price Band, Review & Details

Star Health Insurance IPO: Star Health IPO Date, Price Band, Review & Details

Last updated: 29 Nov, 2021 | 02:01 pm

Star Health Insurance IPO: Star Health IPO Date, Price Band, Review & Details

Star Health and Allied Insurance Company Limited (Star Health) IPO opens for subscription on 30th November. The company is looking to raise up to Rs 7,249 crore through the public issue. Here are the details:

About the IPO

Star Health IPO Date: 30 November - 2 December 2021

Star Health IPO Price band: Rs 870 - Rs 900

Issue Size: Rs 7,249.18 crore (Fresh Issue of Equity Shares aggregating up to Rs 2,000 crore and Offer for sale of up to Rs 5,249.18 crore of 58,324,225 Equity Shares)

Post Issue Implied Market Cap: Rs 50,146 – 51,806 crore

Reservation: QIB 75%, Retail - 10%, NII 15%

Employee Discount: Rs 80

Bid lot: 16 shares, and in multiples of 16 shares

Minimum Investment: Rs 14400

Objectives of the issue

The company plan to use the fundraised for the below purposes:

  • To utilize the net proceed to augment the company's capital base and insolvency level
  • General Corporate Purposes

About Star Health

  • Star Health is the largest private health insurer in India and has a market share of 15.8% in the Indian health insurance market in FY21 (CRISIL Research).
  • They were the first Standalone Health Insurance (SAHI) company when established in 2006. Now, they have grown into the largest SAHI company in India.
  • The company offers a range of flexible and comprehensive coverage options primarily for retail health, group health, personal accident, and overseas travel.
  • Star Health distributes their health insurance policies primarily through individual agents, which accounted for 78.9% of their Gross Written Premium (GWP) in FY21.
  • As of 30 September 2021, Star Health has successfully built one of the largest health insurance hospital networks in India, with more than 11,778 hospitals.
  • Star Health's distribution network has grown to 779 health insurance branches spread across 25 states and five union territories in India. 
  • Their existing branches are also supplemented by an extensive network of over 562 Sales Managers Stations (SMS) and over 6,892 inhouse sales managers.

Listed Peers

The listed peers of the company include ICICI Lombard and New India Assurance. However, ICICI Lombard comparison won't be an Apple to Apple comparison as they operate under general insurance with health insurance not forming a significant component.

  • Among the three, the net worth of New India Assurance is highest at Rs 18,485.38 crore, while that of Star Health is lowest at Rs 3,484.64 crore. 
  • The other two peers have reported profits even in the FY21, whereas Star Health failed to do so.
  • The PE of New India Assurance and ICICI Lombard for FY21 was 15.3 and 46.66, respectively, whereas the PE of Star Health cannot be determined because of loss in the corresponding financial year.
  • The RoNW for New India Assurance, ICICI Lombard, and Star Health is 8.81%, 19.81%, and (23.69)%.

Financials

  • Post the pandemic, the health insurance segment has gained momentum, however, it has suffered a lot due to onetime higher claims on account of the pandemic and that has resulted in poor financial performance. 
  • Star Health had to pay 30% more in claims due to Covid 19 in FY21 and 40.5% more in 6 months ended September 2021.
  • The company's Gross Written Premium has shown significant growth. It was Rs 5,415.36 crore in FY19, Rs 6,890.67 crore in FY20, and Rs 9,348.95 crore in FY21.
  • GWP has grown at 31.4% CAGR from FY19 to FY21. 
  • EBITDA for the same period was Rs 235.94 crore, Rs 468.47 crore, and Rs (974.62) crore. The company has reported losses in FY21 because of the pandemic year. Even the H1FY22 has not been good for the company, and it has reported losses for the first half of the current financial year.
  • The company has not paid any dividends on the equity shares from FY19 till the last financial year.
  • The average retail health sum insured for the company grew at a CAGR of 11.7% from FY19 to FY21, indicating that the company is selling new policies with higher sum insured. 
  • As of 30 September 2021, they had a solvency ratio of 1.52x, compared to the IRDAI prescribed control level of 1.50x.
  • In FY21, they settled and paid 15 lakh claims related to COVID-19 amounting to gross paid claims of Rs 1,528.64 crore.

USP

Largest private health insurance - They are the largest private health insurance company in India by health GWP with an overall health insurance market share of 15.8%. Star Health accounted for 40.5% of the total accretion in retail health GWP in the Indian retail health industry as a whole in FY21 compared to FY20. 

Well spread network distribution - Star Health has a pan-India distribution network that is one of the largest and well spread in the health insurance industry. They have 779 health insurance branches spread across 25 states and 5 union territories in India. They also have the largest number of individual agents among SAHI insurers. Their total number of individual agents grew at a CAGR of 27.3% from 2.9 lakh as of March 31, 2019, to 4.6 lakh as of March 31, 2021, and was 5.1 lakh as of September 30, 2021.

Diversified product suite - The company offers a range of flexible and comprehensive coverage options primarily for group health, retail health, personal accident, and overseas travel. In the last three financial years, they have introduced 56 new products. They focus primarily on the family and economic profile, the age profile, the disease profile, and the geographic profile of their customers. 

Substantial investment in technology - Company’s investments in information technology in digital technologies, data platforms, and automation are key drivers that have improved the effectiveness, efficiencies, and innovations within their business. Their in-house built digital platform helps them interact with their customers, agents, sales teams, hospitals, diagnostics centers, employees, web aggregator partners, corporate agents, as well as corporate agent banks and other intermediaries, seamlessly. 

Growth Potential 

Continue to leverage and enhance market leadership - Star Health plans to leverage their market-leading position scale in the retail health insurance segment to expand their customer base in parallel with India's favorable demographics while growing profitability and increasing their operating leverage. 

Utilize the digitization of the business - The company intends to continue to build on its investments in the digitization of their business and any incremental investments they make in the future to improve operational efficiencies and customer service. Their digitization strategy focuses on 8 key target areas: intelligent automation, hyper-personalization, advanced analytics, omnichannel, micro-services, cloud, business process optimization, and software development.

Respond to the challenges posed by COVID-19 Pandemic - The company plans to continue to utilize and launch applications and technologies that will enable them to provide uninterrupted and quality customer service. For example, such as electronic document submissions and the posting of cashless approvals for claim payments, as well as the sharing of medical records and documentation through cloud technologies. 

Risks

COVID-19 impact - It is obvious from the company's financials (since the start of COVID) that COVID has severely impacted the company's business. The company has seen a significant increase in claims across its network which has impacted its Net Incurred Claims Ratio. If there is another wave in the future, it will impact the company's financials.

Impact on the company's brand - The company's business to a large extent is reliant on the strength of the ‘Star Health’ brand. If for any reason, they are not able to effectively market or build their brand or if 'Star Health' brand or reputation are adversely affected by any events, the financial condition, results of operations, and prospects may be materially and adversely affected. 

Alleged mis-selling - The company sells health insurance through intermediaries - agents and brokers. There could be misconduct on their behalf. For example, they can make non-compliant or fraudulent promises recommending inappropriate products. The company may be subject to claims by customers in such instances of mis-selling. In other instances, they may have paid a commission to the intermediary before being made aware of any claim of mis-selling by customers. If they have to refund the customer but are unable to recover such commission, the company may face significant losses.

Star Health IPO: INDmoney Analysis

Star Health’s financial performance has taken a hit due to higher claims in the ongoing pandemic. The company had to pay 30% more in claims due to Covid 19 in FY21 and 40.5% more in 6 months ended September 2021, denting its bottomline. However, the company’s GWP has grown at a healthy rate of 31% between FY19-FY21. 

Given its negative earnings, it would not be possible to value the IPO using the PE ratio. At the higher end of the price band, Star Health IPO is aggressively priced at a Mcap/ GWP ratio of more than ~5.50 times. This is higher compared to peer New India Assurance, but lower than ICICI Lombard General Insurance Company. Given superior return ratios and financial performance, ICICI Lombard is expected to command a higher valuation.  

Given the company’s strong topline growth, robust outlook due to lower insurance penetration India, leadership position in private health insurance, marquee investors, we remain ‘positive’ on the long-term prospects of the issue but due to steep valuations, the issue may be a risky bet in the short term.