Star Health and Allied Insurance Company Limited

Star Health and Allied Insurance is the largest private health insurer in India with a 15.8% market share in the Indian health insurance market in FY21. It started in 2006 as the first insurance company dedicated to health insurance and it is now the largest health insurance provider, according to a report by CRISIL. In FY21 the company had total Gross Written Premiums (GWP) of Rs 9,348.95 crore and in the H1 of FY22, it had Rs 5,069.78 crore as GWP. The company provides a varied range of health insurance products catering to individuals and groups. It also serves persons with pre-existing medical conditions. The insurance products are primarily distributed through insurance agents and it currently has 5.1 lakh insurance agents as of September 30, 2021. The company has built one of the largest health insurance hospital networks in India, with 11,778 hospitals by the end of H1 FY22. The company has invested in digital technologies, data platforms, and automation. These are expected to be the key drivers for business growth.

Objects of the Offer

• Receive the benefits of listing the Equity Shares on the Stock Exchanges
• Carry out the OFS of up to 5,83,24,225 shares by the selling shareholders
• Carry out the Fresh Issue of up to Rs 2000 crore. The Net Proceeds are to be utilized for augmenting the Company’s capital base and to maintain solvency levels.
• The selling shareholders would receive their respective portions of the OFS proceeds deducting the offer expenses and taxes in proportion.
• The Company expects that listing of shares will enhance Company’s visibility and its brand image among its existing and potential customers.

Financial Summary

*P/E is calculated using NAV/share

Industry Overview

The Indian health insurance market is still underpenetrated, as this segment is still 0.36% of GDP in 2019, compared to the global average of 2.0% of GDP. Demographic factors like life expectancy increase, per capita GDP, population growth, and increasing health expenditure are key drivers for the growth of the health insurance market in India. The Government of India’s measures to increase the reach of insurance to the mass segment and the rising cost of medical care in private hospitals resulted in an increase in the demand for health insurance. The overall health insurance segment grew 13%, with the general insurers witnessing a growth rate of 8% and standalone health insurers witnessing a 28% growth rate in FY21.

The standalone health insurers’ growth rate is much faster than other players in the retail health insurance segment. The key growth drivers of this industry are Government policies to improve healthcare coverage, increasing life expectancy, rising income levels, advancements in medical diagnosis and treatments, and increasing product portfolio.

Competitive Strengths

Star Health and Allied Insurance Company Ltd is the largest private health insurance company in India with a 15.8% overall health insurance market share. It is also a leader in the attractive retail health segment with a 31.3% market share in FY21. The Company’s health GWP was over three times the GWP of the 2nd highest retail health insurance company. The company has one of the largest and widespread distribution networks in the industry. It also has an integrated ecosystem that is believed to increase its access to the growing health insurance segment. It has the largest number of agents among standalone health insurers. The number of agents grew at a CAGR of 27.3% in the years 2019 to 2021, and as of Sept 30, 2021, it had 5.1 lakh insurance agents. The company has a diversified and innovative product portfolio.

Strategies

• Continue to leverage and enhance market leadership in the health insurance segment
• Continue to enhance existing distribution channels and develop alternative channels
• Continue product innovation and provide value added services
• Utilize the digitization of business to improve operational efficiencies and customer service
• Drive profitability by leveraging scale and further improving financial performance

IPO Review

This is the third-largest IPO in terms of issue size in 2021 after One 97 Communications and Zomato. The company suffered a setback in the last 18 months and on the basis of its negative earnings, the IPO seems to be priced aggressively. The P/E ratio cannot be calculated because of its negative EPS in FY21. The 10% quota for retail investors seems to be lucrative, but one should be cautious while applying for this IPO. We believe that the company may not make listing gains because the Institutional investors are given a high percentage of the issue size and those who are interested to make an investment in this company will be applying through the IPO and there may not be an increase in the price after its listing. The grey market premium is considered to be a measure of listing gains by the retail investors and the GMP of Star Health and Allied Insurance Company recently took a hit from Rs 70 to Rs 10, as per market observers.

The company in its DRHP has shown ICICI Lombard and New India Assurance as its listed peers. The companies are currently trading at P/E ratios of 48.42 and 14.9 (as of November 29, 2021). However, they are not truly comparable on an apple to apple basis.