Star Health IPO: A quick look at the company’s financials

Star Health IPO: A quick look at the company’s financials

Standalone health insurance player Star Health and Allied Insurance Company’s ₹7,249 crore IPO has begun and will close on December 2. The IPO is a combination of an offer for sale by existing promoters and shareholders, along with a fresh issue of shares.

 The price band of the offer has been fixed at ₹870-900 a share. Bids can be made for a minimum of 16 equity shares. The insurer’s financials are recuperating

from the Covid 19 pandemic, and the IPO proceeds will aide the recovery.

Star Health was established in 2006 and is

the largest company in the retail health insurance space with a market share of 31.3 per cent.

Even in the wider health insurance market involving group and personal accident covers,it is the second-largest in FY21, competing against PSUs and well-funded bank-based insurers.It is well established in the retail segment (88 percent of revenues in FY21) and has group insurance contributing 11 per cent of revenues. Here’s a quick look at the company’s financials.

As you know, the health insurance sector is a crowded one, with 5 standalone health insurers, 18 private sector and 4 public sector general insurers. In the last 6 years, the industry recorded a growth of 19 per cent CAGR and is estimated to grow by 18 per cent till FY25. About 34 per cent of the health insurance products are sourced from agents. However, this is more for Star as 78 percent of its operation is through agents. It is also well-diversified geographically.

Star Health reported Gross Written Premium growth of 32 per cent CAGR from FY2018-21 in overall health insurance. The reported premium of ₹9,349 crore in FY21 grew 35 per cent from FY20. It has a claims ratio of 62-66 percent of net premium for FY18-20, but it increased to 91-94 percent during FY21 and H1-FY22 and Covid accounted for 30 and 41 percent of net claims in that period, respectively. The management expects that as Covid claims normalize, and even with an increase in pent-up demand from postponed treatment, the claims ratio should return to earlier 65-67 per cent range from Q4-FY22.

The IRDA mandates a solvency margin of 150 percent, which means that companies must maintain the required capital - proportional to the risk undertaken. The proceeds from the IPO are expected to buffer the solvency margins again.

The first standalone health insurer’s IPO

valuation at ₹50,000 crore would need all

the tailwinds from the industry to have a

smooth sailing post the pandemic and to support the valuations. The Star Health IPO values the company at close to 10.3 times net premium earned in FY21 or 12 times Price/Book value.

The nearest listed peer, ICICI Lombard is

valued at price to net premium of 6.1 times and 6.6 times Price/Book. Star Health Insurance would have to grow at 20-25 per cent till FY23 with claims ratio gradually normalising to around 70 per cent for a valuation range of 4 times FY23 net premium or 7.3 times FY23 price/book value.

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