IPO Note - Star Health & Allied Insurance Co Ltd By Nirmal Bang
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BACKGROUND
STAR (Star Health and Allied Insurance Co) is one of the largest private health insurers in India with overall market share of 15.8% and retail share of 31.3%. The company primarily focuses on retail health insurance segment (89% mix). Its network distribution includes 779 health insurance branches across 25 states and 5 union territories in India. STAR has also built one of the largest health insurance hospital networks in India with more than 11,778 hospitals.
Details and Objects of the Issue
The public issue is of Rs. 7239 Cr consisting of –
(i) Offer for sale of Rs. 5,239 Cr by investors and
(ii) Fresh issue of Rs. 2,000 Cr to augment its capital base and maintain the solvency levels.
Investment Rationale:
* Retail health insurance industry to grow at 23% CAGR till FY25
* Industry leading growth with focus on profitable retail segment
* Largest private health insurance company in India
* Largest and well spread distribution network
* Focus on innovative and specialized products
* Strong risk management focus with domain expertise.
Valuation and Recommendation
STAR being the leader in fast growing retail health insurance segment with a market share of 31.3%, offers an attractive opportunity to participate in this granular (retail health mix at 89%), high growth business (FY18-21 GWP CAGR of 31%). In comparison, ICICI Lombard’s growth has lagged at just 4% CAGR owing to a downturn in the motor business (50% mix). STAR and ICICI Lombard both share equally impressive operating metrics, except for the years FY21/22 which are an aberration (due to covid) for STAR, being focused only on the health segment. We view STAR’s valuations at 8.2x Sep 2021 BV favorably in comparison to similar levels for ICICI Lombard, as we expect STAR to continue to grow at much higher growth rates while maintaining decent ROE in the post covid era. We recommend subscribing to the issue from a long term perspective.
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