IPO Analysis: Star Health and Allied Insurance Company
IPO Rating: Invest for long-term
About the issue:
Star Health and Allied Insurance Company Ltd is one of the largest private health insurers in India primarily focused on the retail health and group health segments.
The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 per equity share. The maiden offer comprises a fresh issue of Rs 2000 crore and the sale of shares worth Rs 7,249.18 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 870 to Rs 900 per equity share. The IPO opening date is November 30, 2021, while it will be closing on December 02, 2021. The issue will be listed on the exchange on December 10, 2021. The IPO market lot size is 16 shares. A retail-individual investor can apply up to a maximum of 13 lots (208 shares or Rs 1,87,200). The net proceeds generated from the IPO will be utilized to augment the company's capital base and insolvency level.
Star Health IPO Details
| IPO Opening Date |
30-Nov-21 |
| IPO Closing Date |
2-Dec-21 |
| Issue Type |
Book Built Issue IPO |
| Face Value |
₹10 per equity share |
| IPO Price |
₹870 to ₹900 per equity share |
| Market Lot |
16 Shares |
| Min Order Quantity |
16 Shares |
| Listing At |
BSE, NSE |
| Issue Size |
[.] Eq Shares of ₹10 (aggregating up to ₹7,249.18 Cr) |
| Fresh Issue |
[.] Eq Shares of ₹10 (aggregating up to ₹2,000.00 Cr) |
| Offer for Sale |
58,324,225 Eq Shares of ₹10 (aggregating up to ₹5,249.18 Cr) |
About the company:
Incorporated in 2006, Star Health and Allied Insurance Company Ltd is one of the largest private health insurers in India with a market share of 15.8% in FY21. The company primarily focuses on the retail health and group health segments which accounted for 89.3% and 10.7% of the company's total GWP in Fiscal 2021 respectively.
The company mainly distributes policies through individual agents and also includes corporate agent banks and other corporate agents. As of September 31, 2021, its network distribution includes 779 health insurance branches across 25 states and 5 union territories in India. Star Health has also built one of the largest health insurance hospital networks in India with more than 11,778 hospitals.
Competitive strengths:
- Largest private health insurance company in India with leadership in the attractive retail health segment.
- Largest network distribution in the health insurance industry.
- Diversified product suite with a focus on innovation and specialized products.
- Strong risk management with superior claims ratio and quality customer services.
- Demonstrated track record of operating and financial performance.
Company Financials:
Star Health was a loss-making firm till 2015 and the company had to fund its growth and operations through equity fundraising. Between 2016 and 2020, Star Health made decent returns but it was growing faster and thus, had to rely on outside money for growth. In 2021, the company raised Rs 2600 crore mainly to fund Covid losses and its growth. The COVID-19 crisis resulted in a significant increase in claims across the network of the company, in particular, most recently during the resurgence in COVID-19 cases in April and May of 2021, which is expected to have an impact on the Net Incurred Claims Ratio and solvency ratio for FY22. The impact of the increased claims is seen with the combined ratio standing at 114.80% in FY21. The combined ratio is usually expressed as a percentage. A ratio above 100% indicates that the company is paying out more money in claims that it is receiving from premiums.
In terms of its capital position, the company has a solvency ratio of 2.23x as of March 31, 2021, compared to the IRDAI prescribed control level of 1.50x.
|
Key Financial Metrics
|
Fiscal Year Ended March 31
|
|
2019
|
2020
|
2021
|
|
|
(₹ in millions, except otherwise indicated)
|
|
GWP
|
54,153.58
|
68,906.65
|
93,489.50
|
|
GWP YoY Growth
|
30.10%
|
27.20%
|
35.70%
|
|
Retail Health Renewal Premium Ratio
|
95.90%
|
94.50%
|
97.90%
|
|
Number of policies
|
4.3
|
5.06
|
6.99
|
|
Number of agents
|
0.29
|
0.36
|
0.46
|
|
Number of hospitals in network (in actual number)
|
9,295
|
9,964
|
10,871
|
|
Net Incurred Claims Ratio
|
64.20%
|
65.80%
|
87.00%
|
|
Net Expense Ratio
|
30.10%
|
27.40%
|
27.80%
|
|
Combined Ratio
|
94.30%
|
93.20%
|
114.80%
|
|
Underwriting Profit/(Loss)
|
307.13
|
1,683.96
|
-13,317.82
|
|
Investment Income
|
1,954.33
|
2,935.32
|
4,236.84
|
|
Profit after tax
|
1,282.26
|
2,680.02
|
-8,255.81
|
|
Net worth
|
12,156.93
|
16,286.81
|
34,846.44
|
|
Return on Equity
|
13.10%
|
18.80%
|
-32.30%
|
|
Solvency Ratio
|
1.53
|
1.5
|
2.23
|
Recommendation:
The Indian health insurance market remains in the early stages of its life cycle and continues to be one of the most underpenetrated health insurance markets globally. The health insurance penetration in India is low at just 0.36% of GDP, whereas the global average comes around 2% of GDP. Moreover, India is much behind in terms of health insurance density as compared to other developing and developed nations. China had a 13 times higher premium per person than India in 2019. So, Star Health’s position as the largest private health insurance company and the largest retail health insurance company in India by health GWP positions it well to continue to generate growth and increase market share in the retail health insurance market.
As of December 31, 2020, Star Health had the largest number of individual agents among Stand-alone Health insurers (SAHI), which stood at three times that of the SAHI company. Health insurance is largely an assisted product in which customers often require help in selecting the policy best suited to their potential medical needs, personal circumstances and financial means and in making claims. Individual agents can provide this assistance directly and having a large network of agents enhances the breadth and depth of distribution of policies. Considering that the agent network is one of the key competitive strengths of the company, we should evaluate the efficiency of the company’s agent network vs peers.
|
Retail Health GWP/Agent (INR' 000)
|
2019
|
2020
|
2021
|
|
Star Health
|
161.3
|
161.9
|
178.4
|
|
ICICI Lombard
|
270.9
|
123.1
|
123.6
|
|
Religare (CARE Health)
|
156.5
|
133.6
|
130.2
|
|
HDFC Ergo Health
|
281.3
|
236.3
|
NA
|
We can see that in terms of GWP/yield per agent, Star Health is better than comparable SAHI – Religare but lower than HDFC Ergo Health. It is also similar to general insurance companies such as ICICI Lombard. This indicates that the company is not ignoring productivity for the sake of higher growth. Considering the faster growth, relatively prudent underwriting and market leadership in the retail segment, the market could assign richer valuations to the company. Considering such factors, we recommend investing in the IPO for the long term.