Apis set for 10x returns as Star Health Insurance eyes $4 bn valuation in IPO

 Apis set for 10x returns as Star Health Insurance eyes $4 bn valuation in IPO

Star Health & Allied Insurance Company, which has over half a dozen private equity investors, has filed draft documents to float what would be the first initial public offering by a standalone health insurer in India.

The company, which operates as Star Health Insurance, is looking to raise Rs 2,000 crore by selling fresh equity shares in the IPO, according to the documents filed with the capital markets regulator Securities and Exchange Board of India (SEBI). Separately, several investors are selling part of their stake.

Although the company has not given the overall size, The Capital Quest has learnt that the issue is worth around Rs 5,000 crore ($672 million) with around Rs 3,000 crore going to the selling shareholders.

A special purpose vehicle created by Indian PE firm WestBridge Capital, the UK-based emerging markets PE firm Apis Partners, Madison Capital and Star Health chief Venkatasamy Jagannathan are among those offering shares for sale.

A university endowment fund that is believed to be a limited partner with WestBridge and Australia’s ROC Partners, which was created with a management buyout of Macquarie’s private markets business unit seven years ago, are also selling some shares.

Moolah rouge

The issue is likely to value the company at around Rs 30,000 crore ($4 billion). It would spell juicy returns for its investors—both for those who are selling shares and paper gains for those like Tata Capital’s PE fund that are not.

Apis Partners, which mainly backs financial services companies, will be a big gainer among those who have offered to sell shares in the IPO. Apis had invested around Rs 125 crore in Star Health during 2016 and 2019.

It sold some shares in 2019 when the Jhunjhunwala-WestBridge consortium picked up a large stake in Star Health. It also reinvested at the time, which could have been from its new fund. Apis had made the final close of its second fund that focuses on South, Southeast Asia and Africa at $550 million in 2019.

As per The Capital Quest’s estimates, Apis’ first fund made around three-fold gains in three years in 2019 as it took out around Rs 191 crore. It is now likely to pull out about Rs 384 crore and record over 10 times returns for the shares it is selling in the IPO at the anticipated share price.

With the sale of shares in the IPO, it would have realised about Rs 575 crore without accounting for dividends. This would translate into an internal rate of return (IRR), or annualised return, of over 50%. This would easily beat the benchmark of 20-30% that PE and venture capital firms chase in emerging markets.

The PE firm’s remaining stake in Star Health would be worth Rs 1,210 crore at the anticipated issue price.

Among others, WestBridge as well as Madison and ROC Partners would be cashing out around 3.5 times their investments in a little over two years, churning an IRR of over 65%.

WestBridge would pocket around Rs 1,500 crore while Madison will encash over Rs 400 crore. ROC Partners will take out Rs 125 crore.

Tata Capital Growth Fund, which had bet on the insurer eight years ago and had also cashed out a big chunk when Jhunjhunwala and WestBridge entered the company’s cap table, will be sitting on an even bigger book profit. It is estimated that the PE fund, which is led by Akhil Awasthy, will see an upside of 25 times on its remaining stake. It had pulled in around seven times its investment in six years in the past exit in 2019.

Other investors in the company include Singapore sovereign wealth fund GIC, the US-based Capital Group, Sator Grove and TIMF, which came in as part of a pre-IPO round recently.

Previously, ICICI Venture and Oman Insurance Company had exited with big gains.

Star Health Insurance

The insurance company was incorporated in 2005 and was granted the insurance regulator’s nod to commence business a year later. It is the largest private health insurer in India with a market share of 15.8%, according to CRISIL Research. In the year ended March 31, 2021, it had total gross written premium of Rs 9,348.95 crore.

There are no directly comparable peers but among the private general insurers that offer health insurance as part of their product suite, ICICI Lombard would be a comparable firm. ICICI Lombard has a net worth of more than double that of Star Health and has a market capitalisation of Rs 70,100 crore.

Star Health has picked as many as 11 merchant banks for the IPO with Kotak, Axis, Bank of America, Citi and ICICI Securities being the global coordinators and book running lead managers. Among others, CLSA, Credit Suisse, Jefferies are the book running lead managers. Ambit, DAM Capital and IIFL are co-book running lead managers.

Vivek Sinha

The Capital Quest