Star Health IPO: All You Need To Know
Star Health and Allied Insurance Co., backed by billionaire investor Rakesh Jhunjhunwala, will raise Rs 7,247 crore by selling shares, joining a myriad of companies in their race to list on the bourses in a record year for India’s initial public offers.
The Chennai-based private health insurer’s IPO comprises a fresh issue and an offer for sale, according to its red herring prospectus. It will sell shares at Rs 870-900 apiece, seeking a market value of Rs 51,806 crore at the upper end of the price band.
Of the net offer, 75% is reserved for qualified institutional buyers, 15% for non-institutional buyers and 10% for retail investors.
Promoter and promoter group shareholding will fall to 58.4% after the share sale, while public shareholders will own the rest. Jhunjhunwala, one of the promoters, will not dilute his stake.
Issue opens on: Nov. 30.
Issue closes on: Dec. 2.
Issue size: Fresh issue of equity shares aggregating up to Rs 2,000 crore and an offer for sale of up to 5.83 crore equity shares.
There is an employee reservation for equity shares up to Rs 100 crore, which will be offered at a discount of Rs 80 apiece.
Face value: Rs 10 apiece.
Bid lot: 16 equity shares or its multiples thereafter.
Listing on: BSE and NSE.
Kotak Mahindra Capital, Axis Capital, BofA Securities India, Citigroup Global and ICICI Securities are global coordinators and lead managers to the sale.
CLSA India, Credit Suisse Securities, Jefferies India, Ambit Capital, DAM Capital, IIFL Securities and SBI Capital Markets are co-book running lead managers.
Proceeds from the fresh issue will be used to augment capital base and maintain solvency levels.
Other general purposes.
Expects to benefit from listing in terms of enhancing visibility and brand image.
Established in 2006, Star Health is India’s largest private health insurer with a market share of 15.8% in fiscal ended March 2021, the IPO prospectus said citing Crisil Research. Its gross written premium was at Rs 9,348.95 crore for 2020-21 and Rs 5,069.78 crore for the six months ended September 2021.
Retail health insurance — paid for by private individuals or families through out-of-pocket expenses or private insurance.
Group health insurance — paid for by employers, typically in the form of company health insurance plans that may involve co-payments by the employee.
Government health insurance — paid for by the government, typically in the form of central or state government health insurance programmes (in fiscal 2020 to low-income households).
Star Health’s retail health gross written premium was more than three times that of the next highest retail health insurer in 2020-21, the prospectus said citing Crisil Research.
Its distribution network as of September comprised 779 health insurance branches spread across 25 states and five union territories in India.
The company has also tied up with 11,778 hospitals for health insurance as of September. Of this, it has pre-agreed arrangements with 7,741 hospitals, or 65.7% of the total number.
As of September 2021, Star Health had a solvency ratio of 1.52 compared with the insurance regulator’s prescribed level of 1.50.
The company settled and paid 1.5 lakh Covid-19 claims amounting to Rs 1,528.6 crore in FY21.
For the six months ended September, it settled and paid 1.9 lakh Covid-19 claims amounting to Rs 1,786.5 crore.
Combined ratio, referring to total expenses and losses/claims, was 114.8% in FY21 against 93.2% in FY20.
For the half year ended September, it stood at 119.2% compared with 91.9% a year earlier.
As of September, the company had Rs 650 crore of outstanding debt liabilities.
Assets Under Management
Total investment assets/ assets under management amounted to Rs 7,116.58 crore, which earned a realised return of 7.1% in FY21.
For the half year ended September, AUM stood at Rs 8,812.6 crore with a realised portfolio return of 9.78%.
Star Health has listed peers such as ICICI Lombard General Insurance Co. and New India Assurance Co.
The company in the IPO prospectus, however, said ICICI Lombard may not be strictly comparable as it operates under general insurance with health insurance not forming a significant component. Star Health is a standalone health insurance provider. To be sure, New India Assurance, too, is a general insurer.
Any potential future waves and effects of the Covid-19 pandemic on customers in terms of infection and the need for hospitalisation will result in higher claim payments.
Inadequate estimation of future claims liabilities.
Inability to maintain relationships with existing hospital network where pre-negotiated rates tend to result in lower-than-average claims.
Failure to attract new network hospitals.
Failure to develop and grow distribution network of agents in a cost-effective manner.
Fall in interest rates could negatively impact investment portfolio as 98.4% of total investment assets, by carrying value, was invested in fixed income assets and mutual funds as on Sept. 30, 2021.
Outstanding legal cases against the company.
Regulatory notices could harm reputation and unfavourable government policies and regulations.
Increased competition in the space could lead to aggressive pricing and negatively impact business.