Niva Bupa Health Insurance
IPO Size: Rs. 2,200 cr
- Rs. 1,400 cr Offer For Sale (OFS) by promoter (89% stake to drop to 73%)
- Rs. 800 cr Fresh Issue to augment capital and strengthen solvency ratio of 2.4x
Price band: Rs. 70-74 per share
- 75% reserved for institutions and only 10% retail, as loss in FY22
M cap: Rs. 13,520 cr, implying 16% dilution
IPO Date: Thu 7th Nov to Mon 11th Nov 2024, Listing Thu 14th Nov 2024
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Standalone Health Insurer
Niva Bupa Health Insurance is a health insurance company, with annual gross written premium (GWP) of Rs. 5,600 cr – split 70:30 between individual and group. Channel mix comprises 32% from 1.5 lakh individual agents, 27% from 486 brokers, 20% banks, 13% direct. Combined ratio of 98.8% in FY24 (lower the better) makes it more profitable than general insurance companies (having 100%+ combined ratio).
Financials
Covid claims led to net loss of Rs. 197 cr in FY22, with Rs. 13 cr PAT in FY23. As premium increased 38% YoY in FY24, net profit rose to Rs. 82 cr under IGaap (and to Rs. 106 cr under IFRS), translating into 1.5% net margin on premium.
In Q1FY25, premium rose 31% YoY, but seasonality and accounting methodology led to Rs. 19 cr net loss. However, this is likely to get recouped by year-end, as Q1FY24 bottomline was negative at Rs. 72 cr. Q4 topline is the strongest for insurance business due to year-end purchases, undertaken by policyholder for tax sops.
Fully Valued on Peer Comparison
Larger standalone health insurer Star Health clocked GWP of Rs. 15,250 cr in FY24, with 5.5% net margin, 14% RoE, 96.67% combined ratio – all parameters stronger than Niva. Star is trading at price to GWP (P/GWP) multiple of 1.6x and PE of 33x, on FY25E basis.
On the other hand, Niva Bupa’s GWP is nearly a third of Star, with 98.79% combined ratio, 1.5% net margin, yet IPO is priced higher on both counts - P/GWP multiple of 1.8x and PE of 100x+. Niva Bupa’s premium growth of 31% is higher than Star’s 18%, albeit on a lower base. Thus, Niva’s higher growth compensates for lower margins, making the IPO price in all the positives.
Secondary Sale at Higher Price
On 28th Oct 2024, one of the promoters sold 1.16% stake at Rs. 85 per share for Rs. 150 cr. In just 10 days, IPO price is 13% lower, probably impacted by volatile secondary markets.
Since its IPO in Dec 2021, share price of Star Health has halved, despite improved profitability in 3 years. Barring ICICI Lombard, non-life insurance stocks have not rewarded Indian investors, highlighting a dismal track record for the sector.
