IPO Size: Rs. 1,172 cr IPO, Entirely Offer for Sale (OFS)

• by individual promoter: 31% stake to drop to 10%, as a 12-year old management buyout liability being repaid
• by corporate promoter Bessemer to trim 45% stake to 36%
• by PE investor Investcorp (21% stake to drop to 13%)

Price band: Rs. 397-418 per share

M cap: Rs. 2,878 cr, implying a heavy 41% dilution

IPO Date: Mon 15^th Jan to Wed 17^th Jan 2024, Listing Mon 22^nd Jan 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Third Party Administrator for Health Insurance

Medi Assist is the largest third party administrator (TPA) in the Rs. 1,800 cr domestic industry, enjoying 29% industry revenue market share and 56% PAT market share, within the TPA industry, implying superior profitability vis-à-vis peers. On an overall health premium serviced basis, company’s market share is 17%, as 55% of health insurance premiums are serviced by TPA, and balance still in-house by insurance companies. Share of TPA in health insurance premiums serviced, has grown from 52% in FY19 and is expected to further rise to 61% by FY28E, due to value proposition offered by TPA - Medi Assist cashless claim inflation is 6% vis-à-vis 12% overall Indian medical inflation during FY21-23.

Healthy Financials

Revenue grew at 25% CAGR between FY21-23, to Rs. 505 cr, with operating EBITDA up at 26% CAGR to Rs. 119 cr, translating to 23.6% EBITDA margin. FY23 PAT was at Rs. 75 cr, leading to 15% net margin and an EPS of Rs. 10.8. While reported RoE in FY23 stood at 19%, it was upwards of 50%, excluding cash and equivalents. As of 30.9.23, on net worth of Rs.408 cr, company is debt-free with cash and equivalents of Rs. 143 cr.

One-offs in H1FY24 Results

Growth continued in H1FY24, with revenue up 24% YoY to Rs.302 cr. However, post 2 acquisitions - Medvantage for Rs. 24 cr in Feb 2023 and Raksha for Rs. 120 cr in Aug 2023, margin got impacted, with operating EBITDA of Rs. 62 cr and 21% EBITDA margin. Rs. 21 cr one-time employee IPO incentive scheme further impacted profitability, with H1FY24 PAT at Rs. 24 cr, against Rs. 37 cr in H1FY23. However, going forward, company is confident of going back to 23-24% EBITDA margin and 14-16% PAT margin levels.

Attractively Valued

Estimating FY25E EPS of close to Rs. 13, the one year forward PE multiple stands at 32x. While there are no direct peers, CAMS and Kfin serving mutual fund industry are ruling at PE multiples of 45x and 40x respectively. Thus, there exists room for some PE expansion. Debt free balance sheet, double digit net margin and high RoE business make it attractive.

Selling Overhang Immediately Post Listing

Investcorp, being a SEBI-registered venture capital fund, is exempt from 6 month lock-in for its 13% post IPO stake. This will cast a selling overhang on the share price immediately from listing date.

Over the longer term, Bessemer’s 36% stake may also come up for sale, as it has invested 12+ years ago and is finally only a financial investor. Thus, while business is attractive, these ‘technical’ factors may weigh on the share price.