Star Health IPO opens tomorrow: What should investors do? Know what brokerages recommend

Star Health Insurance Limited IPO is all set to open for subscription on Tuesday, November 30, 2021. The initial public offer of the company backed by ace investor Rakesh Jhunjhunwala will close on December 2, 2021. India’s first pure-play health insurance company, Star Health and Allied Insurance Company Ltd. (Star Health), is coming up with an IPO to raise Rs 7,250 crore. The price band is Rs 870 - 900 per share.

As far as what investors should do, mostly rating agencies and brokerages have dubbed this issue as over expensive in comparison to its listed peers.  

What should investors do?  

Marwadi Shares and Finance Limited: Avoid
Marwadi Shares and Finance Limited has said the issue is expensive than its peers namely ICICI Lombard and New India Assurance Limited and one should avoid applying for this IPO. "Considering the September 30, 2021, adjusted BVPS of Rs.90.35 on post issue basis, the company is going to list at a P/B of 9.96 with a market cap of Rs.5,17,961 million, while its peers namely ICICI Lombard and New India Assurance Limited are trading at P/B of 8.25 and 0.71 respectively. We assign “Avoid” rating to this IPO as issue is expensive as compared to its peers."

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ICICI Direct Research: Unrated
ICICI Direct said Pandemics, like Covid-19, could impact Star Health Insurance Limited business materially. It said changes in regulatory environment may also impact the business and there is also segmental concentration risk, ICICI Direct Research chose to not rate this issue.  
"Star is a leading player in the health insurance industry with a strong distribution network, diversified product suite. At the upper end of price band, the company is valued at ~5.9xAUMas on September 30, 2021. We assign UNRATED rating to the IPO," said ICICI Direct research in its report

Angel One Ltd: Subscribe for long-term

The valuations commanded by Star Health at ~5.5x FY21 Mcap/GWP, are in-line with recent deals in the standalone health insurers (SAHI) space and appears fair considering its positioning, said Amarjeet Maurya - AVP - Mid Caps, Angel One Ltd. "Hence, we recommend SUBSCRIBE from a long-term perspective only," he said.  

Backing his recommendation, the analyst said Star Health stands out among other standalone health insurers (SAHI) in terms of size, strong growth rates (32% Gross Written Premium CAGR over FY18-21) and better operational performance, which is reflected in pre-Covid numbers for the company (~93% combined ratio).

Swastika Investmart Ltd: Subscribe for long-term

The company has mixed set on financials over the last three years where the company's GWP has increased over the years while the company suffered a loss in FY21.  

"If we  look at the company's financials, we can see that it was doing well until  Covid hit last  year.  The  company  has  the  largest  marketshare  which  is positive  for  the  company,  however , the  industry  is  getting  competitive. The valuation of the company is stretched r. At the upper price band of Rs.  900,  Star  Health  is  demanding  an  MCAP  to  net  premium  earned multiple of 10.3x, which is at a premium to the peer average. Thus, we assign a "SUBSCRIBE" rating only for the long term." 

Arihant Capital: Subscribe for long-term

At the upper price band of INR 900, the issue is valued at a P/BV multiple of 14.2x based on its FY21 BVPS of INR 64. The Company has better track record than its peers in the health insurance industry- led by a higher share of retail health in its product mix v/s the industry, a higher focus on SMEs in the group health segment, and better agent productivity. "The health insurance penetration (premium as a percentage of GDP) in India at 0.4% is significantly lower v/s global average of 2%. We recommend that investors subscribe for long term." 

About the company

Incorporated in 2006, Star Health and Allied Insurance Company Ltd (Star Health) is one of the largest private health insurers in India with a market share of 15.8% in Fiscal 2021. The company primarily focuses on the retail health market segment.  

It offers a range of flexible and comprehensive coverage options for retail health, group health, personal accident, and overseas travel, accounting for 87.9%, 10.5%, 1.6%, and 0.01%, respectively, of the total Gross Written Premium (GWP) in Fiscal 2021. As of September 30, 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.

(Disclaimer: The views/suggestions/advices expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)