Star Health and Allied Insurance IPO - Information Note

5paisa Research Team 5paisa Research Team 13th December 2022 - 03:19 pm

Star Health and Allied Insurance was established in 2005 by the former CMD of United India Assurance, V Jagannathan. Over the last 16 years, Star Health and Allied Insurance has emerged as a dominant player in health insurance origination with a market share of 15.8%.

Health insurance penetration in India is just 0.36% against the world average of 2%, opening up a huge opportunity in terms of market share and premium wallet share.

Star Health and Allied Insurance offers a number of flexible options like individual health cover, group cover, personal accident cover and overseas travel cover.

Their suite of health insurance offerings has already covered 2.05 crore persons till date. Star Health gets 87.9% of revenues from retail health and 10.5% from group health. In terms of structure, family and individual floaters account for 81% of the value of policies sold.

Star Health and Allied Insurance IPO Key terms -

Key IPO Details	Particulars	Key IPO Dates	Particulars
Nature of issue	Book Building	Issue Opens on	30-Nov-2021
Face value of share	Rs.10 per share	Issue Closes on	02-Dec-2021
IPO Price Band	Rs.870 - Rs.900	Basis of Allotment date	07-Dec-2021
Market Lot	16 shares	Refund Initiation date	08-Dec-2021
Retail Investment limit	13 Lots (208 shares)	Credit to Demat	09-Dec-2021
Retail limit - Value	Rs.187,200	IPO Listing date	10-Dec-2021
Fresh Issue Size	Rs.2,000 crore	Pre issue promoter stake	66.22%
Offer for Sale Size	Rs.5,249 crore	Post issue promoters	58.42%
Total IPO Size	Rs.7,249 crore	Indicative valuation	Rs.51,806 crore
Listing on	BSE, NSE	HNI Quota	15%
QIB Quota	75%	Retail Quota	10%

_{Data Source: IPO Filings}

Here are some of the key merits of the Star Health and Allied Insurance business model

1) Star Health has gained from the rising health consciousness and insurance awareness post-COVID and has seen a sharp rise in pull flows towards health policies.

2) COVID-19 resulted in a 28% YOY growth in gross written premiums (GWP) in fiscal 2021 for health insurance, with Star Health witnessing 35.7% growth in GWP.

3) As of Sep-21, Star Health has an empanelled network of 11,778 hospitals and a 97.9% retail renewal premium ratio for FY21.

4) For FY21, investment income grew 117% over FY19 at Rs.423 crore while the GWP for FY21 was up 73% over FY19 at Rs.9,349 crore.

5) As of Sep-21, Star Health has 5.10 lakh individual agents contributing 79% of the total business for fiscal year 2020-21.

6) Refined and fine-tuned claims management system ensured 94.1% claim processing within a span of 30 days.

7) As of Sep-21, Star Health achieved solvency ratio of 152%, above the IRDA stipulated requirement of 150%. The IPO will improve solvency ratio.

How is the Star Health and Allied Insurance IPO structured?

The IPO of Star Health and Allied Insurance is an offer for sale (OFS) cum fresh issue. Here is a gist of the IPO offer.

a) The OFS component will comprise the issue of 5,83,24,225 shares and at the upper price band of Rs.900, the OFS value works out to Rs.5,249 crore.

b) Out of the OFS of 583.24 lakh shares, the 3 promoters will sell 308.31 lakh shares. Among other early investors; Apis Growth will offer 76.80 lakh shares; University of Notre Dame 74.39 lakh shares and MIO Star 41.11 lakh shares each in 2 funds.

c) Post the offer for sale and the fresh issue, the promoter stake will come down from 66.22% to 58.42%. Public shareholding post the IPO will stand enhanced to 41.58%.

d) The fresh issue component of Rs.2,000 crore includes Rs.100 crore employee reservation. The shares available to public will be 2,11,11,111 equity shares which at the upper end of the price band of Rs.900 which works out to fresh issue size of Rs.1,900 crore (ex-employees).

Check - Star Health and Allied Insurance IPO - 7 Things to Know

Key Financial parameters of Star Health and Allied Insurance

Financial Parameters	Fiscal 2020-21	Fiscal 2019-20	Fiscal 2018-19
Gross Premiums Written	Rs.9,348.95 cr	Rs.6,890.67 cr	Rs.5,415.36 cr
EBITDA	Rs.(974.62) cr	Rs.468.47 cr	Rs.235.94 cr
Net Profit / (Loss)	Rs.(825.58) cr	Rs.268.00 cr	Rs.128.23 cr
Net Worth	Rs.3,484.64 cr	Rs.1,628.68 cr	Rs.1,215.69 cr
Net Asset Value (NAV)	Rs.63.58	Rs.33.20	Rs.19.00

_{Data Source: Company RHP}

Star Health and Allied Insurance has shown consistent growth in gross premiums written (GPW), net worth and the net asset value over the last two years.

However, the EBITDA and the net profits were negative in FY21 as an exceptional case due a sharp spike in COVID related claims. The record claims pay-out resulted in negative EBITDA.

Star Health and Allied Insurance is expected to have a listing market cap of Rs.51,806 crore. That will give a MCAP/GPW ratio of 5.54X, which is reasonable for a health insurance company, with a dominant 15.8% market share.

Investment Perspective for Star Health and Allied Insurance

Here is what investors must consider before investing in the Star Health IPO.

a) The EBITDA losses for FY21 and for H1FY22 are an outcome of an exceptional surge in claims due to COVID. That is a one-off and should subside fully post FY22.

b) A strong proprietary distribution model based on individual agents makes the network a valuable property for the company even as direct sales have scaled 10%.

c) Fresh funds to be used for augmentation of capital buffers and solvency ratio, which should take solvency well above 150%.

d) Apart from being promoted by an insurance veteran, V Jagannathan, Star Health is also backed by Rakesh Jhunjhunwala and Westbridge Capital.

e) Star Health’s health insurance market share at 15.8% as of Mar-21 is 500 bps above United India Assurance at 10.8% and gross direct premiums are 50% higher than UIA.

The IPO of Star Health and Allied Insurance has been priced at about 5.54 times its GWP, which is a reasonable valuation for an industry leader.

Insurance is a long haul game and investors would be best advised to take a long term approach to the IPO.

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