The initial public offering (IPO) of Rakesh Jhunjhunwala-backed Star Health and Allied Insurance Company opened for subscription on Tuesday. Investors will be able to bid for the public offering till December 2.

The company said yesterday that it has raised a little more than Rs 3,217 crore from anchor investors ahead of the IPO launch. It may be noted that the company plans to Rs 7,249.18 crore through its IPO, comprising a fresh issue of shares worth Rs 2,000 crore and an offer for sale (OFS) for 58,324,225.

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KEY DETAILS ABOUT START HEALTH IPO

The price band of the IPO has been set at Rs 870-900 per share and investors can bid for a minimum of 16 shares under a lot for Rs 14,400. Investors can buy a maximum of 14 lots for a sum of Rs 1,87,200.

It may be noted that the IPO is backed by ace investor Rakesh Jhunjhunwala, Safecorp Investments India and Westbridge. The company has reserved 75 per cent of shares for qualified institutional buyers (QIBs), 15 per cent of non-institutional investors (NIIs) and the remaining 10 per cent for retail investors.

The company has also reserved shares worth Rs 100 crore for its employees. As of 1:40 pm on Tuesday, the IPO has been subscribed 9 per cent and is expected to grow as the day progresses.

It is worth mentioning that Star Health and Allied Insurance Company is one of the largest private health insurers in the country with a market share of nearly 16 per cent in the overall health insurance market as of FY21.

The company, incorporated in 2006, focuses on the retail health and group health segments, which accounted for over 89 per cent and 10 per cent of the company’s total gross written premium (GWP) in FY21.

One of the biggest strengths of the company is that it has a large distribution network in the health insurance industry. Its diversified product offerings with a focus on innovation and specialized products also gives it an additional edge. However, it suffered a huge blow during the Covid-19 pandemic and continues to face the threat of low profitability.

As of today, the company’s grey market premium (GMP) was Rs 10, which is significantly low in comparison to recent IPOs. While GMP remains weak at the moment, it all depends on whether it rises or falls before getting listed on the stock exchanges. The company is expected to get listed on the BSE and NSE on December 10.

SHOULD YOU SUBSCRIBE?

Many brokerages have given a ‘subscribe’ rating to the IPO, but with a note of caution due to the impact of the pandemic on the health insurance industry. According to Choice Broking, investors may subscribe to the IPO cautiously.

The brokerage noted that the pandemic led to sharp growth in the company’s business, but also impacted profitability. It also noted that the occurrence of a new virus wave or a new variant may become a profitability concern for the company.

However, the brokerage noted that the risk will be lower as compared to levels witnessed during H1 FY22. It added that at the higher price band of Rs 900, the company is demanding a market capitalisation-to-net premium earned multiple of 10.3x, which is at a premium to the peer average. “Considering the above observations, we assign a “Subscribe with Caution” rating for the issue,” it said.

Meanwhile, Nirmal Bang recommended investors to ‘subscribe’ to the issue from a long-term perspective, given the challenges during Covid-19. However, the brokerage expects Star Health to grow at a much higher rate while maintaining decent returns on investment in the post-Covid era.

Brokerage house Angel One also recommended a ‘subscribe’ rating to the IPO from a long-term perspective, as the company’s valuations look fair. ICICI Direct Research is one of the few brokerages that assigned an ‘unrated’ rating to the IPO.