Rakesh Jhunjhunwala-backed Star Health IPO opens tomorrow; GMP evaporates, should you subscribe?

Rakesh Jhunjhunwala-backed Star Health and Allied Insurance IPO will open for subscription tomorrow as the company looks to raise Rs 7,249 crore from investors.

Rakesh Jhunjhunwala IPO
Star Health’s IPO is a mix of a fresh issue of equity shares and an offer for sale (OFS) by existing shareholders. (Image: REUTERS)

Rakesh Jhunjhunwala-backed Star Health and Allied Insurance IPO will open for subscription tomorrow as the company looks to raise Rs 7,249 crore from investors. Shares of Star Health and Allied Insurance will be available for investors to subscribe from tomorrow in a fixed price band of Rs 870-900 per share in a bid lot of 16 shares. Ahead of the IPO the grey market premium (GMP) of Star Health has declined sharply to now sit below Rs 10 per share, according to people who deal in unlisted stocks. The GMP of Star Health was close to Rs 90 per share last week.

Issue details

Star Health’s IPO is a mix of a fresh issue of equity shares and an offer for sale (OFS) by existing shareholders. The fresh issue size of the IPO is Rs 2,000 crore while the remaining Rs 5,249 crore is an OFS. From the promoter and promoter group, Safecrop Investments India LLP, Konark Trust, MMPL Trust are looking to trim their stake in the company. Other investors selling their stake include Apis Growth 6 Ltd, Mio IV Star, University of Notre Dame Du Lac, Mio Star, ROC Capital Pty Ltd, Venkatasamy Jagannathan, Sai Satish and Berjis Minoo Desai. Big bull Rakesh Jhunjhunwala will not be selling his 14.98% stake in Star Health and Allied Insurance. 

From the funds raised, Star Health and Allied Insurance plans to augment the capital base. Promoter currently holds 66.22% stake in the company and post-IPO this will come down to 58.30%. Public holding will increase from the current 33.78% to 41.70%.

Valuations fair or expensive?

“At the higher price band of Rs 900, Star Health is demanding a MCAP-to-net premium earned multiple of 10.3x, which is at premium to the peer average,” said analysts at Choice Broking. The brokerage firm has ‘Subscribe with Caution’ on the issue. On the other hand, Angel One termed valuations as fair. “The valuations commanded by Star Health at ~5.5x FY21 Mcap/GWP, are in-line with recent deals in the SAHI (standalone health insurers) space and appears fair considering its positioning,” they said while pinning a ‘Subscribe’ rating on the issue with a long-term perspective. Analysts at ICICI Direct have not rated the IPO but value the company at ~5.9x AUM on the. 

Structural play on health insurance

ICICI Direct has said that the Star Health and Allied Insurance is a Play on structural health insurance opportunity. “Star is a leading player in the health insurance industry with a strong distribution network, diversified product suite,” they added. Star Health and Allied Insurance is the largest private health insurer in India with a market share of 15.8% in the Indian health insurance market as of FY21. Among key concerns seen by analysts for Star Health and Allied Insurance is the possibility of increased claims if Covid-19 pandemic continues. 

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