Star Health looks for a premium

the music at the 2021 IPO party has turned down a notch since the biggest (Indian) entrant of them all took a tumble upon entry. but those memories might not last for long. even at the end of a record year, there’s still a slew of others all decked up and ready to take their own shot at a grand entrance. Tarsons has already managed to step out of Paytm’s shadow and register a healthy 27% listing gain. 

that will give hope to Star Health Insurance, India’s largest private pure-play health insurer, which is hoping to list on the public markets at a $7 billion valuation. Its $974 million IPO is open from November 30 to December 2.

riding the waves

after the pandemic struck, people became a lot more conscious and concerned about their health. this led to a bump in business for several health-related sectors, from gyms and healthy eating players to diagnostic labs and insurance providers. the insurance sector has sustained this bump, with the health segment continuing to deliver strong growth at 29% year-on-year for YTD FY22.

as the market leader, Star Health is in a good position to make the most of this uptick. its total income for FY21 jumped 9.2% to $725 million. as of September 30, 2021, it had a 15.8% share of India’s health insurance market and 11,778 network hospitals. it also enjoyed a 31.3% share of the retail health insurance market in FY21.

terms and conditions

some analysts have expressed concern at the valuation that Star Health Insurance is seeking, which is 5.5x its FY21 Gross Written Premium (total premium covered by an insurer). despite the pandemic bringing more people under its umbrella, Covid-related claims have been taxing on the company’s outgo. Star Health's loss ratio - the ratio of insurance claims paid and expenses to the total premium earned - worsened to 88% against an average of 65% before the pandemic. 

proceeds from the IPO will also largely help Star Health improve its solvency ratio which was at 1.52x at the end of September, just above the insurance regulator's prescribed control level of 1.5x. so the margins are currently a little thin for the company which reported a loss of $110 million in FY21.

given the current market sentiment, which has turned to caution since the emergence of the Omicron variant of the Covid-19 virus, whether Star Health will go up or down on listing day is anyone’s call. but with the business set to see growth for many years to come, the proposition may present good value to the long term investor.