What you must know about Medi Assist Healthcare Services IPO?

Medi Assist Healthcare Services Ltd was incorporated in the year 2002 as a healthtech and insurance-tech company.  The company manages health benefits for employers, retail members, and public health schemes, with its main customer base being the insurance company that originates these health insurance products. Medi Assist Healthcare Services Ltd offers medical insurance and cashless hospitalization through its network of healthcare service providers. However, Medi Assist Healthcare Services Ltd also acts as an intermediary between health insurance companies and their insured members. In addition, the company also interfaces between insurance companies and the healthcare providers (hospitals) for empanelment and claims. In addition, Medi Assist Healthcare Services Ltd also handles the Government and beneficiaries of public health schemes. It has a collaboration with a total of 36 insurance companies in India and abroad.

Medi Assist Healthcare Services Ltd  had revenues of ₹570.29 million in the latest fiscal year ended March 2023. The company’s network encompasses over 14,000 hospitals in 967 cities and towns spread across 32 states and union territories of India. Apart from a small part of its product coming from origination of insurance products, the company also deals in assisting the three major stakeholders in the health insurance business viz., the insurance company, the healthcare service provider (hospital) and the customer who has bought the health insurance policy. In the fiscal year FY23, Medi Assist Healthcare Services Ltd has settled a total of 5.27 million claims. This includes a total of 2.44 million in-patient claims and 2.83 million out-patient claims. It plays a key intermediary role in insurance sector.

The entire IPO is an offer for sale (OFS). That means there will be no fresh funds coming into the company on account of the IPO. An offer for sale is just a transfer of shares from one shareholder to another. The IPO will be lead managed by Axis Capital, IIFL Securities, Nuvama Wealth Management and SBI Capital Markets. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the Medi Assist Healthcare Services IPO issue

Here are some of the key highlights to the public issue of Medi Assist Healthcare Services IPO.

• Medi Assist Healthcare Services IPO will be open from January 15th, 2024 to January 17th, 2024; both days inclusive. Medi Assist Healthcare Services IPO has a face value of ₹5 per share and the price band for the book building IPO has been set in the range of ₹397 to ₹418 per share. The final price will be discovered within this band through the process of book building.
   
• Medi Assist Healthcare Services IPO will be entirely comprising of an offer for sale (OFS), with no fresh issue component in the issue. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• The offer for sale (OFS) portion of the Medi Assist Healthcare Services IPO comprises the issue of 2,80,28,168 shares (280.28 lakh shares approximately), which at the upper price band of ₹418 per share will translate into a fresh issue size of ₹1,171.58 crore.
   
• Promoters currently hold 67.55% in the company. Out of the promoters, Dr Vikram Jit Singh Chhatwal will offer his entire 3.69% stake in the company via the OFS. The other promoter, Medimatter Health will reduce its stake from 27.94% to 9.83%. The third promoter, Bessemer India Holdings will not be offering shares. The promoter stake, post the issue will stand reduced to 45.75%.
   
• Since there is no fresh issue, the OFS portion will also double up as the overall issue size. Hence, the overall IPO of Medi Assist Healthcare Services Ltd will also comprise of the issue of 2,80,28,168 shares (280.28 lakh shares approximately), which at the upper price band of ₹418 per share translates into total IPO size of ₹1,171.58 crore.

The IPO of Medi Assist Healthcare Services Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by Dr Vikram Jit Singh Chhatwal, Medimatter Health Management Private Ltd, and Bessemer India Capital Holding II Ltd. Currently the promoters hold 67.55% stake in the company, which will get diluted post the IPO to 45.75%. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota, as indicated above. There is no employee offer that has been communicated by the company. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in Medi Assist Healthcare Services IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Medi Assist Healthcare Services Ltd, the minimum lot size is 35 shares with upper band indicative value of ₹14,630. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Medi Assist Healthcare Services Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Medi Assist Healthcare Services IPO and how to apply?

The issue opens for subscription on 15th January 2024 and closes for subscription on 17th January 2024 (both days inclusive). The basis of allotment will be finalized on 18th January 2024 and the refunds will be initiated on 19th January 2024. In addition, the demat credits are expected to also happen on 19th January 2024 and the stock will list on 22nd January 2024 on the NSE and the BSE. Medi Assist Healthcare Services Ltd will test the appetite for insurance stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 19th January 2024 under ISIN (INE456Z01021). Let us now turn to the practical issue of how to apply for the IPO of Medi Assist Healthcare Services Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Medi Assist Healthcare Services Ltd

The table below captures the key financials of Medi Assist Healthcare Services Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Medi Assist Healthcare Services Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been robust and steady. However, what stands out about Medi Assist Healthcare Services Ltd is that the net profits have grown nearly 3 times in the last 2 years and that has led to the net margins being extremely  robust at over 14% in the last two years.
    
2. Even the ROE and the ROA have been very robust. For instance, the ROE has stayed above 18% for the last 2 years while the ROA is in double digits during this period. That should be help in valuations and also to justify above industry average valuations.
    
3. The company has had low sweating of assets around 0.7X in these years. However, the ROA is still attractive and the asset turnover ratio should get better in the coming quarters when the sales pick up momentum. In the short term, the overhang of the low sweating of assets may remain in the stock.

Let us turn to the valuations part. On the latest year diluted EPS of ₹10.65, the stock is available in the IPO at a P/E of 39.25 times. That is a relatively high P/E ratio if you compare with the similar P/E ratio of the peer group. The weighted average P/E may only marginally change the outcomes. However, if the company is able to maintain the current rate of sales growth and the current net margins, then justifying valuations should be a lot simpler.

Let us look at some of the qualitative advantages that Medi Assist Healthcare Services Ltd brings to the table.

• The company is a long standing third party administrator (TPA) services provider in India and that is generally a low-risk, high margin business.
   
• Smart leveraging of technology to cater to all the stake holders in the insurance eco system in India
   
• Deep and long standing relationships established with the insurance companies on the one side and the healthcare service providers on the other.

It is a high growth business and can be seen as a good proxy for the growth of the insurance business and financial inclusion in India. The pricing may look a little on the higher side, but investors in the IPO can look at this as a proxy play on financialization of savings, which is already happening at a rapid pace. Investors in the IPO can look at the stock with a longer term perspective with the appreciation that insurance stocks have not done too well on the bourses in the last 5 years. Investors with a higher risk appetite and willing to wait for over a year can look at this IPO.