Star Health and Allied Insurance Company Limited - IPO Note


Star Health and Allied Insurance Company Limited - IPO Note


Price range
Rs. 870 – 900
Issue Period:
Nov 30, 2021
Dec 02, 2021
November 29, 2021

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 7249.18 cr.
Public Issue
8.05 cr. shares
Market cap post IPO
7,074 – 7,249 cr.
Equity Pre - IPO
55.33 cr.
Equity Post - IPO
57.56 cr.
Issue type
Fresh Issue and Offer for Sale

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research

Key Strengths and Strategies

Largest Health Insurance Company with Leadership in Retail Health Segment
Star Health is 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 FY21. In FY21, it issued 7 million (5.1 million in FY20 and 4.3 million in FY19) health insurance, which was the highest among all health insurance providers. Its retail health GWP was +3x the GWP of the next highest retail health insurance market participant in FY21. The company is the largest SAHI insurer in India and the only SAHI company among the top five health insurance businesses in India in FY21.

From FY19 to FY21, the company’s retail health GWP grew at a CAGR of 32.5%, and its size and market share positions it to continue to capitalise on market dynamics in the retail health insurance sector. In addition to procuring new business, it has a steady stream of customers coming back, with ~98% renewals by GWP value for retail health business in FY21, as well as ~63.4% higher inward portability compared to FY20. Average retail health sum insured for the company grew at a CAGR of 11.7% from FY19 to FY21, indicating that the company selling new policies with higher sum insured.

Diversified Product Suite with a Focus on Innovative and Specialized Products
Star Health offers a range of flexible and comprehensive coverage options primarily for retail health, group health, personal accident, and overseas travel. From FY18 to H1FY22, the company has introduced 56 new products (including all variations of policies).

Particulars (Rs. in Crores) FY19 FY20 FY21 H1FY22
Revenue % Revenue % Revenue % Revenue %
Retail Health 4,679.11 86.40% 5,838.90 84.74% 8,215.09 87.87% 4,339.92 85.60%
Group Health 595.44 11.00% 892.13 12.95% 984.24 10.53% 662.82 13.07%
Government Health - 0.00% 4.47 0.06% - 0.00% - 0.00%
Personal Accident 127.54 2.36% 142.75 2.07% 148.93 1.59% 67.04 1.32%
Travel 13.27 0.25% 12.42 0.18% 0.69 0.01% 0.01 0.00%
Total GWP 5,415.36 100.00% 6,890.67 100.00% 9,348.95 100.00% 5,069.79 100.00%

Source: Company RHP

It creates products through a product development process that involves market research, market demand analysis, coverage gaps analysis, and profitability assessments. It focuses on the family and economic profile, age profile, disease profile, and regional profile of customers while developing products. Family floater products, individual products, and specialised products based on the customer's age and disease profile are among the company's offerings. The company has created premium products in a variety of product categories. Other innovative products, such as top-up health insurance, have been launched that go beyond typical health insurance policy coverage. It has also introduced products and pricing that are exclusive to certain regions.

One of the Largest and Wide Distribution Networks in the Health Insurance Industry
Pan India Presence: The company has one of the broadest pan-India distribution networks in the industry. The company has the largest branch network among private health insurance providers in India, with 779 health insurance branches scattered throughout 25 states and 5 union territories as of September 2021. The company's branch network is augmented by a network of 560+ SMS and 6,890+ in-house sales managers.

Agency Distribution Channel: The company had the most individual agents among SAHI insurers as of March 2021, with ~3x the number of agents as the second highest SAHI company. Its agents accounted for ~60% of all agents in India's SAHI industry. From 0.29 million in FY19 to 0.46 million in FY21, the overall number of individual agents has increased at a CAGR of 27.3 percent (0.51 million in H1FY22).

Other Distribution Channels: To supplement its agency network, Star Health maintains a variety of distribution methods, including direct online sales through telemarketing, website and interactive apps, brokers, insurance marketing agencies, and web aggregators. As of September 30, 2021, it also had 8 telemarketing units for telemarketing and website sales.

To Continue Leverage and Enhance Leadership in the Retail Health Insurance Segment
The Indian health insurance market is still in its early phases of development and remains one of the world's most underpenetrated health insurance markets. Several demographic reasons are expected to continue to fuel expansion in the health insurance market, with the retail health insurance segment in India being particularly appealing due to its lower penetration, density, and claims ratio when compared to other segments. The company intends to use its market-leading position in retail health insurance to grow its customer base in tandem with India's favourable demographics, while also increasing profitability. Star Health intends to use health statistics, consumer patterns, and behaviours to improve customer selection and product development.

Intends To Expand Agency and Branch Networks
In order to continue to add clients and grow GWP, Star Health plans to support the growth of its agency network by growing its branch network in India's underpenetrated, semi-urban and rural areas. In order to expand geographic and client reach, it also intends to improve existing corporate agent bank ties and join new corporate agent bank agreements. It also plans to continue evaluating strategic potential with new corporate agent banks and collaborate with existing corporate agents like LIC Housing Finance and ICICI Securities.

Digitisation of the Business to Improve Operational Efficiencies and Customer Service
The company plans to continue to invest in digitisation of its operations as well as any future investments to increase operational efficiencies and customer service. Intelligent automation, hyper-personalization, advanced analytics, omni-channel, micro-services, cloud, business process optimization, and software development are all part of the company's digitisation strategy.

Drive Profitability by Leveraging Scale and Further Improve Financial Performance
For improving operating and financial performance, the company intends to do the following:

  • Grow its agreed hospital network.
  • Engage in fraud control and mitigation by studying customer behaviour and utilizing preventive fraud analytics.
  • Reduce the net expense ratio by continuing to eliminate, standardise, and automate internal processes.
  • Enhance end-to-end customer-centric service experience.
  • Use advanced analytics of data on customer patterns and behaviours and claims to reduce claims costs.
  • Make each branch across network, a profit centre.
  • Continue to target under-penetrated rural markets.


Losses in FY21 and H1FY22: It has incurred losses in FY21 from a profit of Rs. 268crores in FY20 to a loss of Rs. 825.58 crores in FY21. In addition, it posted loss of Rs. 380.27 crores in H1FY22 vs. profit of Rs. 200 cores in H1FY21.

Risk of Catastrophic Events: Pandemics and other catastrophic events, such as natural disasters could materially increase liabilities for claims, which results in losses in investment portfolios, and have a material adverse effect on the business.

Focused on Retail Heath Insurance: As a significant portion of the business is generated from the retail health insurance sector, the company is susceptible to any adverse trends and other developments that may affect the sale of retail health and other insurance products.

Liquidity Risk: Some of the company’s investments may not have sufficient liquidity. If it is required to dispose of these investment assets on short notice due to significant number of insurance claims, it could be forced to sell such investment assets at prices lower than the invested prices.

Market Risk: The company is exposed to market risk, including changes in interest rates or adverse movements in the equity markets that could impair the value of its investment portfolio and have a material impact on the financials.

Legal Proceedings: There are outstanding legal proceedings involving the Company, Directors, Promoters, and Group Company. Criminal (1 case), Civil (2 cases with amount involved Rs. 462.4 crores), Tax (5 cases with amount involved Rs. 105 crores), and others.

Highly Competitive Industry: The company operates in a highly competitive, evolving, and rapidly changing industry and if it cannot respond to increasing competition, its market share could be impacted, which in turn, have an impact on financials.

Offer for Sale: 72% of the issue size (Rs. 5,249.18) is offer for sales and the balance is fresh issue, which will be used by the company to augment capital base and maintain current solvency levels and other corporate purpose.

Company Description

Established in June 2005, Star Health and Allied Insurance Company (Star Health), is the largest private health insurer in India with a market share of 15.8% in the Indian health insurance market in FY21. Since incorporation, it has grown into the largest Standalone Heath Insurance (SAHI) company in the overall health insurance market in India. It offers a range of flexible and comprehensive coverage options primarily for retail health, group health, personal accident, and overseas travel. It is strategically focused on the retail health market segment and had retail health Gross Written Premium (GWP) of Rs. 8,215.1 crores (FY21) and ~Rs. 4,340 crores (H1FY22). It distributes health insurance policies primarily through individual agents, which accounted for 78.9% of GWP in FY21. As of March, 2021, it had the largest number of individual agents among SAHI insurers, at ~3x that of the SAHI company with the next highest number of agents.

Star Health has led the non-public health insurance market in terms of number of new branch openings since FY18, and its branch network was +2.5x the number of the next largest non-public health insurance provider as of March, 2021. As of September, 2021 its distribution network had grown to 779 health insurance branches spread across 25 states and 5 union territories in India. Its other origination channels include distribution by direct online sales through telemarketing, website, brokers, insurance marketing firms, and web aggregators.

Star Health also engages with customers through in-house tele-medicine service, which reduces costs associated with claims by giving customers access to experienced doctors that can give second opinions and alternative medical solutions over the telephone or internet. The company has built health insurance hospital networks with 11,778 hospitals as of September, 2021. Out of the total number of hospitals, it has entered pre-agreed arrangements with 7,741 hospitals, or 65.7%.

Outlook and Valuation

Health Insurance penetration in India is low at just 0.36% of GDP compared to global average of ~2%. Countries like the UK, China, Argentina, and the USA have higher penetration level of 0.61%, 0.65%, 0.78% and 4.1%, respectively. Therefore, we believe that India has a large headroom for growth in coming years. Further, within the health insurance industry, retail business is expected to grow at a CAGR of 23% between FY21-FY25 compared to 15% and 11% CAGR in Group and Government business, respectively. Increasing penetration, rising customer awareness, and increasing focus towards retail business are expected to facilitate strong growth of the retail business segment of the industry. Star Health, being largest private health insurance company in India with leadership in the retail health segment, is expected to reap benefits in the coming years from the above-mentioned tailwinds.

The company has faced some headwinds due to Covid-19 pandemic, which has resulted in higher claims, which in turn, had an impact on the profitability. However, we believe, these are the near-term hiccups and in long run, the company could see growth in business backed by increasing awareness amongst people, especially amongst youth, who have joined the workforce recently and see health insurance as a need.

The company is valued at close to 10.3x net premium gained in FY21, or 12x Price/BV. With a 22% health insurance contribution in FY21, the nearest listed rival, ICICI Lombard, is valued at 6.1x Price/Net Premium and 6.6x Price/BV. Amongst the listed players, ICICI Lombard & New India Assurance are direct plays on general insurance industry. GIC Re is an indirect play. However, Star health offers a direct & unique play on the fastest growing segment of general insurance industry. Pre- covid the company has been clocking better return ratios relative to other listed players. In view of better financial performance & strong positioning in fastest growing segment, we believe Star health deserves premium valuation We recommend the SUBSCRIBE the issue only for long term horizon.

Peer Comparison

Particulars (Rs. in Crores) PE Net Profit EPS Net Worth ROE NAV
Star Health NA -825.58 -16.54 3,484.64 23.69% 63.58
ICICI Lombard GIC 46.66 1,473.05 32.41 7,435.15 19.81% 163.56
New India Assurance 15.30 1,627.75 9.95 18,485.38 8.81% 112.17

Source: Company RHP

Key Information

Use of Proceeds:
The total issue size is Rs. 7,249.18 crores, of which Rs. 2,000 crores is fresh issue and balance (Rs. 5,249.18 crores) is OFS. The company will utilise the net proceeds from the fresh issue to augment capital base and maintain solvency levels.

Book running lead managers:
Kotak Mahindra Capital Company Limited, Axis Capital Limited, BofA Securities India Limited, Citigroup Global Markets India Private Limited, ICICI Securities Limited, CLSA India Private Limited, Credit Suisse Securities (India) Private Limited, Jefferies India Private Limited, Ambit Private Limited, DAM Capital Advisors Limited, IIFL Securities Limited, and SBI Capital Markets Limited.

Venkatasamy Jagannathan (Chairman and CEO), Subbarayan Prakash (Managing Director), Anand Shankar Roy (Managing Director), Nilesh Kambli (CFO), and Aneesh Srivastava (Chief Investment Officer).

Financial Statement

Profit & Loss Statement:- (Consolidated)

Year End March (Rs. in Crores) FY18 FY19 FY20 FY21
Gross Premium Written 4161.10 5415.40 6890.70 9349.00
Net Premium Written 3196.00 4141.50 5261.40 7144.80
Premium Earned (Net) 2739.60 3579.50 4693.00 5022.80
Income from Investment (Net) 88.80 134.00 192.40 260.60
Total Income 2828.40 3713.50 4885.40 5283.40
Commission 136.60 263.80 340.90 583.80
Operating Expenses 861.40 987.40 1096.30 1401.40
Incurred Claims 1692.00 2297.60 3087.40 4369.50
Total Expenses 2690.00 3548.80 4524.60 6354.70
Underwriting Profit/Loss 138.40 164.70 360.80 -1071.30
Income in Shareholders' Account 197.60 226.30 462.00 -907.80
Total Expenses 26.40 44.00 48.50 138.00
Profit Before Tax 171.20 182.30 413.50 -1045.80
Profit After Tax 170.20 128.20 268.00 -825.60