Apis, WestBridge-backed Star Health cuts IPO size to cross the finish line

 Apis, WestBridge-backed Star Health cuts IPO size to cross the finish line

The initial public offering of Star Health & Allied Insurance Co. Ltd managed to sail through on the final day on Thursday after the company trimmed the issue size.

The insurance company slashed the size of the IPO by 14.5%, from Rs 7,250 crore to Rs 6,200 crore.

The IPO originally comprised a fresh sale of shares worth Rs 2,000 crore and a secondary market sale of 58.32 million shares by its existing shareholders. The shareholders are now selling about 46.66 million shares, 20% less than before, two people aware of the development told The Capital Quest.

Accordingly, the public offering of 33.14 million shares — excluding the anchor allotment — received bids for 35.60 million shares at the end of the third and final day, stock exchange data showed. This means the book was subscribed 1.07 times.

The IPO had received 12% demand on the first day on Tuesday and was subscribed 20% at the end of Wednesday.

As per the original book size, the company received bids for only 80% of the shares on offer. As per Securities and Exchange Board of India (SEBI) guidelines, an IPO needs at least 90% bids to sail through. However, an IPO that reserves 75% of the shares for institutional investors—such as Star Health—needs 100% subscription.

Madison India Capital, London-based Apis Capital, Indian private equity firm WestBridge Capital, and a university endowment fund had proposed to sell their shares in the IPO. It could not be immediately ascertained which of the selling shareholders held itself back from selling shares, or whether they all trimmed their quota proportionately.

Market participants said the pricing and timing of the Star Health IPO did not work in the company’s favour. With the threat of Omicron, an emerging variant of the coronavirus, looming, investors chose to stay away from a company that reported a loss in the previous financial year and could take a hit given the spike in its claims ratio.

The company, which mainly caters to retail customers, saw its claims ratio surge to 88% from 65% pre-Covid.

Geetanjali Kedia, analyst and head of primary markets research at SP Tulsian Investment Advisory Services, forecasted that the company was unlikely to turn profitable in fiscal 2022 as the risk of 91% claim ratio in the first quarter of fiscal 2022 — when the country was hit by the second wave — remain elevated.

“Even if the company gets back to the black in fiscal 2023, with an extremely optimistic expectation of Rs 500 crore in net profit, the company would command a price of 104 times its one-year forward earnings, which is extremely aggressive,” Kedia said, adding that ICICI Lombard commands a valuation of 39 times its price-to-earnings (P/E).

ICICI Lombard has a net worth of more than double that of Star Health and has a market capitalisation of Rs 71,850 crore.

Star Health, which is also backed by ace stock market investor Rakesh Jhunjhunwala, was seeking a valuation of as much as Rs 51,796 crore ($7 billion) through its IPO. The health insurer has set a price band of Rs 870-900 per share.

The firm counts 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, among its other shareholders. Previously, ICICI Venture and Oman Insurance Company had exited with big gains.

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.

Ankit Doshi

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The Capital Quest