Rakesh Jhunjhunwala-backed Star Health's IPO to open today; should you subscribe?

Rakesh Jhunjhunwala-backed Star Health's IPO to open today; should you subscribe?
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Rakesh Jhunjhunwala-backed Star Health and Allied Insurance Company is set to launch an initial public offer (IPO) worth Rs 7,249 crore on Tuesday, November 30. The IPO of Star Health — backed by ace investor Rakesh Jhunjhunwala and PE firm Westbridge Capital — comprises fresh issuance of equity worth Rs 2,000 crore and an offer for sale (OFS) of equity worth Rs 5,249 crore by promoters and existing shareholders.

The subscription window for Chennai-based insurer Star Health and Allied Insurance Company’s IPO will close on Thursday, December 2.

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Under the Star Health IPO, investors will be able to bid for shares in the price band of Rs 870-900 in multiples of 16. One lot, at the upper end of the IPO price band, will cost bidders Rs 14,400.

Star Health and Allied Insurance Company shares will likely be listed on stock exchanges BSE and NSE on December 10.

ALSO READ: India’s biggest IPOs of all time

Should you subscribe to Rakesh Jhunjhunwala-backed Star Health’s IPO?

Here’s what brokerages say about the Star Health IPO:

Choice Broking

The brokerage has a ‘subscribe with caution’ rating on the Star Health IPO.

“At the upper end of the price band, Star Health is demanding an MCAP-to-net premium earned multiple of 10.3 times, which is at a premium to the peer average. Moreover, the demanded valuation is at an elevated premium to recent capital issuance,” said Choice Broking.

It, however, said the macros of the health insurance segment are very positive. Because of the pandemic, awareness on health insurance is at an all-time high, it said.

“Star Health being a dominant player focusing on retail health insurance is well placed to benefit from the expansion in the market. The pandemic, despite positively impacting business growth, has impacted the profitability severely. In future, the occurrence of a new coronavirus wave or the emergence of the new variant will be a concern for the profitability. However, the risk will be lower as compared to levels witnessed during H1 FY22. The peers considered for benchmarking the valuation operate in general insurance market and health insurance is one of their various offerings. Thus these can be considered proxy peers,” it said.

Angel One

The brokerage recommends subscribing to the Star health IPO.

“Star Health stands out among other standalone health insurers 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 (a combined ratio of around 93 percent),” Angel One said.

“The valuations commanded by Star Health at around 5.5 times FY21 MCAP/GWP are in-line with recent deals in the standalone health insurance space and appear fair considering its positioning,” the brokerage added.

Religare Broking

“Star Health stands to benefit from positive industry growth trends given its leadership position in the attractive retail health segment. It has one of the largest and well-spread distribution networks in the health insurance industry, and an integrated ecosystem. It offers a range of flexible and

comprehensive coverage,” said the brokerage.

“The company’s financial performance was impacted in FY21 due to the pandemic. Going forward, it intends to enhance its market leadership by leveraging its strong brand. It aims to enhance existing distribution channels and develop alternative channels. It also intends to focus on product innovation and provide value-added services. Moreover, the investments in digitisation would help the company achieve higher operational efficiencies and better customer service,” said Religare Broking, which has not rated the Star Health IPO.

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