Star Health IPO grey premium drops 75% but analysts positive


Star Health IPO is set to open for subscription on 30 November 2021 and this Rakesh Jhunjhunwala-backed company is likely to get listed on 10 December 2021. Meanwhile, Star Health IPO grey premium is undermined by broader market correction, although initial research reports have given a bullish stance. Offered in the price band of INR870 – 900 per share, the upcoming IPO is expected to raise as much as INR7,249.18 crore through a mix of fresh issue and an Offer For Sale (OFS).

Star Health and Allied Insurance has proposed to use IPO proceeds from fresh issues towards augmentation of its capital base and maintenance of solvency levels.

It is noteworthy that Rakesh Jhunjhunwala is the largest shareholder in the company with 14.98% equity stake while his wife Rekha Jhunjhunwala also owns 3.23% holding. However, neither the ace investor nor his wife will be selling shares in the OFS. The selling shareholders include Safecrop Investments India, Apis Growth 6, University of Notre Dame, MIO IV Star, MIO Star, ROC Capital Pty, Sai Satish, Venkatasamy Jagannathan, Konark Trust, Berjis Minoo Desai, and MMPL Trust.

Star Health IPO grey premium sliding

Grey market activity started on a positive note with a premium of nearly INR120 per share, indicating a 13% premium over offer price. Nevertheless, it has come down significantly and currently trades at just INR30 per share despite the backing of Rakesh Jhunjhunwala. The latest rates, sourced from grey market operators, indicate 75% cut in Star Health IPO grey premium from initial levels.

Market sources attribute the fall to volatile conditions in the secondary market. Meanwhile, analysts are bullish on the prospects of the company. “Star Health is the first pure-play health insurance company to be listed on stock exchange and could benefit from the increased awareness in the insurance market post Covid,” noted Elite Wealth while recommending investors to subscribe to the offer.

Similar sentiments were echoed by Angel One which found the valuations in-line with recent deals. “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). 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. Hence, we recommend SUBSCRIBE from a long-term perspective only,” opined Amarjeet S Maurya, analyst at the brokerage house.

Fresh Covid-19 concerns have made markets jittery and there is no telling when the ongoing correction will be over. However, a recovery in Star Health IPO grey premium is not ruled out if broader markets rebound.

Retail investment

Investors desirous of investing in India’s largest private health insurer need to apply for minimum 16 shares and in multiples of 16 shares thereafter. This means that the minimum investment amount in Star Health IPO is INR 14,400 (INR 900 x 16) at the upper end of the pricing spectrum. Retail investors can apply for maximum 13 lots, which translate to maximum application amount of INR 1,87,200 (INR14,400 x 13).

Strategic focus on retail health market segment

By the virtue of owing 15.8% market share, Star Health is the largest private health insurer in the Indian health insurance market, said the company’s Red Herring Prospectus (RHP) citing CRISIL Research. During FY2021 and first half of FY2022, its total gross written premium (GWP) stood at INR 9,348.95 crore and INR 5,069.78 crore, respectively.

The company is strategically focused on the retail health market segment and expects the segment to emerge as a key growth driver for the overall health insurance industry in India after the COVID-19 crisis due to low penetration of health insurance, high out-of-pocket expenses for healthcare costs and since only 10% of the population has insurance policies outside of government plans.


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