Angel Broking recommends 'Subscribe' to Star Health and Allied Insurance IPO

Religare, Axis Capital, B&K, Choice Broking highlight positives of India's largest pure-play health insurers in India

Angel Broking has recommended subscribe to Star Health And Allied Insurance Company Limited (Star Health) from a long term perspective. It considers that the Rakesh Jhunjhunwala backed Star Health stands out among other standalone health insurers (SAHI) 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 (~93% combined ratio).

From being the first Standalone Health Insurance ("SAHI") company established in India in 2006, they have grown into the largest SAHI Company in the overall health insurance market in India, as per Axis Capital IPO note on Star Health. Star Health, says the Axis note, offers a range of flexible and comprehensive coverage options primarily for retail health, group health, personal accident and overseas travel. Their comprehensive health insurance product suite insured 2.05 crore lives in Fiscal 2021.

On valuation, the Angel Broking IPO note has concluded that the valuations commanded by Star Health at ~5.5x FY21 MCap/GWP, are in-line with recent deals in the SAHI space and appears fair considering its positioning.

Star Health and Allied Insurance Company Limited, the largest private health insurance company and the largest retail health insurance company in India by health GWP, with a 15.8% overall health insurance market share and a 31.3% retail health insurance market share in fiscal 2021, stands to benefit from positive industry growth trends given its leadership position in the attractive retail health segment according to IPO note released by Religare Broking.

The Company 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 says the Religare Broking note.

As per the Axis Capital IPO note, Star Health has also successfully built one of the largest health insurance hospital networks in India, with more than 11,778 hospitals as of September 30, 2021. Out of the total number of hospitals in their network, they have entered into pre-agreed arrangements with over 7,741 hospitals, or 65.7%, of the total number of hospitals in their network, says the Axis Capital IPO note.

Another research firm Choice Securities in its IPO note has termed that macros of the health insurance segment is very positive. Moreover, because of pandemic, awareness of the health insurance is at all-time high. It believes, Star Health being a dominant player focusing on the retail health insurance is well placed to benefit from the expansion in the market.

B&K Securities In its flash note prepared based its interaction with the management, has termed Star Health and Allied Insurance Company Ltd as a Dominant player in the under penetrated health insurance market. Referring to Star Health as the largest pure-play health insurer in India with a market share of 15.8% (FY21), B&K Securities IPO note on the company says that Star Health is confident of maintaining the growth momentum demonstrated in the pre-pandemic period and being a bottom-line focussed company, Star Health will ensure that underwriting quality remains under control and that the growth will not come at the expense of profitability.

The Company has indicated that its solvency post the Rs. 20.0 billion infusion will remain at a comfortable level of 2.5x and the company will not need to raise additional capital for the next 3-5 years, says B&K in its IPO.

On digitalisation, the Religare broking believes that investments in digitization would help the company achieve higher operational efficiencies and better customer service. However as per flash note released by B&K Securities, the company is of the opinion that while digital channels will gain prominence, the importance of face-to-face interactions before closing sales of health insurance (due to complex nature of products requiring assisted sales) highlights the importance of traditional channels. Management does not expect fintech companies to be major disruptor in the retail health insurance space.

Going forward, the company 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 indicates the IPO note released by Religare Broking.

As of September 30, 2021 Star Health's distribution network had grown to 779 health insurance branches spread across 25 states and 5 union territories in India, as per the Axis Capital IPO note. Their existing branches are also supplemented by an extensive network of over 562 Sales Managers Stations ("SMS") and over 6,892 in-house sales managers.

Source : Equity Bulls

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