Star Health IPO: Brokerages list positives & negatives

Star Health and Allied Insurance Company Limited, backed by ace investor Rakesh Jhunjhunwala, will open for subscription tomorrow on November 30, 2021. The company plans to raise up to Rs 7,249.18 crore through the share sale in the price band of Rs 870 to Rs 900. The initial public offer will close for subscription on December 2, 2021.

Star Health and Insurance is the largest private health insurance company and the largest retail health insurance company in India by health GWP (Gross Written Premium), with a 15.8 per cent overall health insurance market share and a 31.3 per cent retail health insurance market share in fiscal 2021, according to CRISIL Research.

According to the research house, the company has been consistently ranked first in the retail health insurance market in India based on retail health GWP over the last three fiscal years. Retail health GWP was over three times the GWP of the next highest retail health insurance market participant in fiscal 2021.

The company aims to utilize the IPO proceeds to augment it's capital base and insolvency level.

Meanwhile, here’s what the brokerages have to say about the Star Health public issue:

Angel One

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  • Largest private health insurance company in India with leadership in the attractive retail health segment
  • Well spread distribution network
  • Diversified product suite & a experience team

  • Further impact of Coivd-19 could increase claims
  • Any increase in competition could negatively impact profitablity
Valuation: The valuation commanded by the company at around 5.5x FY21 market cap/ GWP are in line with recent deals in the SAHI (Standalone Health Insurers) space and appears fair considering its positioning. Hence, the brokerage recommends to ‘Subscribe’ to the IPO from a long-term perspective only.

Also read:  Star Health - An interesting opportunity for long-term investors

Axis Capital

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  • Largest private health insurance company in India with leadership in the attractive retail health segment
  • Pan India presence through a well spread distribution network and integrated ecosystem
  • Diversified product suite with a focus on innovative and specialized products
  • Domain expertised management team
  • Has consistently demonstrated superior operating and financial performance
Key Business Strategies:

  • Continues to leverage and enhance market leadership position
  • Continues to enhance existing distribution channels and develop alternatives channels
  • Collaborations with Fintech and Insurtech companies
  • Focus on SME group sales
  • Adaptation to post-Covid-19 enviornment

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  • Largest player and leadership in the attractive retail health segment
  • Well spread distribution network and an integrated ecosystem that enables to continue to access the growing retail health insurance market
  • Diversified product suite with a focus on innovative and specialized products
  • Strong risk management focus and domain expertise driving a superior claims ratio and quality customer service

  • Unfavourable government policies and regulations
  • Continued risk from Coivd-19 pandemic
  • Unfavourable movement in interest rates
  • Inability to manage hospital network and distribution channels
  • Difficulty in improving and maintaining the profitability
Religare Broking

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Valuation: The brokerage firm states in its IPO note, that the Indian health insurance market continues to remain underpenetrated, with a health insurance penetration of only 0.36 per cent of GDP in 2019, compared to the global average of approx. 2.0 per cent of GDP.

It expects, the gross direct premium for health insurers to grow at approx. 18 per cent CAGR over the next four years. Within this, the retail business is expected to grow at a CAGR of 23 per cent between FY21-25 as compared to 15 per cent and 11 per cent CAGR growth in group and government business.

Star Health stands to benefit given its leadership position, and going forward the company intends to enhance its market leadership position by leveraging its strong brand. Further, investments in digitization would help the company achieve higher operational efficiencies and better customer service, adds the IPO note.

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