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 7^th Nov to Mon 11^th Nov 2024, Listing Thu 14^th 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 28^th 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.