Star Health and Allied Insurance Company's initial public offer (IPO) will open for subscription on November 30 and close on December 2. The IPO comprises a fresh issue of Rs 2,000 crore and an offer for the sale of equity shares worth Rs 5,249 crore (5.8 crore shares) by promoters/existing shareholders. The company has fixed a price band of Rs 870- Rs 900 for the IPO. Under the Star Health IPO, shares will be available for bidding in multiples of 16 units. The Star Health IPO market lot size is 16 shares. a retail-individual investor can apply for up to 13 lots or 208 shares valuing Rs 187,200. Star Health and Allied Insurance will utilize the proceeds from the fresh issuance to widen its capital base. Shares will be listed on BSE and NSE on December 10.
Star Health’s business
Established in 2006, Star Health and Allied Insurance Company Ltd are one of the largest private health insurers in India. The company had a market share of 15.8% in fiscal 2021. Star Health mainly focuses on the retail health and group health segments which respectively accounted for 89.3% and 10.7% of its total GWP in fiscal 2021. It primarily distributes policies through individual agents and also includes corporate agents and corporate agent banks. The company’s network distribution includes 779 health insurance branches across 25 states and 5 union territories in India as of September 30, 2021. The company has one of the largest health insurance hospital networks in India covering over 11,778 hospitals.
Star Health offers coverage options in five formats. These are 1. Retail health insurance, 2. Group health insurance, 3. Government health insurance, 4. Personal accident and 5. Travel insurance. The most important metric is Gross Written Premium (or GWP). It is the sum of Gross Direct Premium Income (or GDPI) and reinsurance inward premium accepted. The company’s GWP stood at 6,890.67 in FY2020 as against Rs 5,415.36 crore in FY2019. It reflects a year-on-year rise of 27.2%. It jumped 35.7% y-o-y to Rs 9,348.95 crore in FY2021. For the first half of FY2022, the same was Rs 5,069.78 crore, up 28% compared to Rs 3967.1 crore in the first half of FY2021.
Share of retail health in FY2021’s total GWP grew to 87.9% in fiscal 2021 from 84.7% in fiscal 2020. On the contrary, the contribution of group health declined to 10.5% in FY2021 compared to 12.9% in FY2020. The company’s operating profit almost doubled from Rs 235.94 crore in FY2019 to Rs 468.47 crore in FY2020. However, Star Health witnessed an operating loss at Rs 974.62 crore in fiscal 2021.
Star Health and Allied Insurance have listed peers such as ICICI Lombard General Insurance and New India Assurance Company. However, both the peers have a small share of health insurance in total insurance premiums. Star Health posted a net loss of Rs 825.6 crore in fiscal 2021. It was in sharp contrast with the peer group. ICICI Lombard reported a net profit of Rs 1,473 crore in FY2021 whereas New India Assurance’s net profit stood at Rs 1,628 crore. Investors should note that during the Covid19 pandemic, apart from the market size, the competition too increased by leaps and bounds. Aggressive pricing by established players can negatively impact the profitability of Star Health which has already witnessed loss at the operating level in fiscal 2021. Although the company has a very strong network around India, it may not able to maintain these relationships where pre-negotiated rates may result in lower-than-average claims. Overall, investors should consider all these factors before taking a final call.
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Currently GMP is in negative. Huge listing loss expected.Like 0