Star Health and Allied Insurance IPO- Largest standalone health insurance company plans to raise over Rs.2000 crore

Star Health Insurance, founded in 2006, is the first standalone health insurance (SAHI) company in India. Since then, the company has become the largest SAHI company in the entire insurance market of the country with a Gross Written Premium (GWP) of Rs.9,348.95 crores in FY21. They have a pan-India network of 737 health insurance branches, spread across 26 states and 4 union territories. Star Health Insurance’s product suite has insured 20.5 million lives in FY21.

The IPO comprises of a fresh issue worth Rs.20,000 million and an offer for sale up to 60,104,677 equity shares. The promoters of this issue are Safecorp Investments India LLP, WestBridge AFI I and Rakesh Jhunjhunwala. The company has close relations with numerous banks across India. The book running lead managers to the IPO are CLSA India Pvt Ltd, Credit Suisse Securities (India) Pvt Ltd, and Jefferies India Pvt Ltd. The co- book running lead managers are IIFL Securities Ltd, Ambit Pvt ltd, DAM Capital Advisors Ltd and SBI Capital Markets Ltd.

The company plans to use the proceeds from the issue to enhance and augment the capital base of the company in FY22.

According to a CRISIL research, the Indian health insurance market is still in a nascent phase and still continues to be one of the most under penetrated markets, globally. Health insurance premiums have grown at a CAGR of 19% in the last six Financial years. Compared to the 21% CAGR of private companies during FY15-FY21, the premium of SAHI witnessed a CAGR of 39%.

Financials: (In Rs mn)

Star Health Insurance is the largest private company in the Indian health insurance sector and accounts for 16% market share in FY21. And, Star Health is the only SAHI in the top 5 health insurance companies. The company witnessed an increase of 4.9% in market share, between FY18 and FY21. The company accounts for 31% of the gross premiums collected by the retail health insurance industry in FY21. This premium was 3 times any of its close competitors.

Star Health has a network of around 350,000 agents in India as of March,2020, which is followed by CARE which has 125,000 agents as of the same date. In order to judge a non-life insurance company, combined ratio is an important measure. Anything above 100% indicates that the company is spending more than net premium earned. In FY20, Star Health had the lowest combined ratio.

The company also was the only SAHI to have a healthy ROE in FY20, having more than 10% ROE in the last three fiscal years. The company also has the maximum number of offices in India.

Strengths:

1. Star Health Insurance offers a large variety of products and services which allows the company to grab a larger market share and customer base

2. With the recent pandemic, many young professionals and people are getting read to invest in insurances. Due to the huge network and general goodwill in the market, Star Health Insurance has a higher probability of capturing these new customers

Weakness:

The plans and policies that are provided by the company are very common and almost all of its competitors provide the same policies. There is a stagnancy in innovation in the company, which can become a problem in the long run.

Key points:

1. Has an active network of about 9,500 hospitals

2. The company sold nearly 43 lakh insurance policies in the period between April 2020 and November 2020

3. Promoter, Rakesh Jhunjhunwala will not be selling his shares in the OFS, according to the DRHP