Medi Assist IPO Opens Today: Should You Subscribe?

The initial public offer (IPO) of Medi Assist Healthcare Ltd, which kicked off today, will close for subscription on Wednesday, January 17. The Bengaluru-based health insurance third-party administrator (TPA) is looking to raise Rs 1,171.58 crore through its offering. This issue is a pure Offer for Sale (OFS), which means the firm will not receive any proceeds from the offer. All the offer proceeds will be received by the selling shareholders, in proportion to the shares sold by them.

Medi Assist IPO Timeline & Details: Everything You Need To Know

• Medi Assist IPO Price: The firm has announced a price band of Rs 397 to Rs 418 per share for its IPO.
• Medi Assist IPO Opening Date: Subscriptions for the IPO start today on Monday, January 15, 2024.
• Medi Assist IPO Size: The firm seeks to raise Rs 1,171.58 crore from its initial public offer, which is entirely an Offer for Sale (OFS).
• How to Apply for Medi Assist IPO: Prospective investors can bid in lots, with each lot consisting of 35 shares of the company. To apply for the IPO, the minimum investment is set at Rs 14,630 (calculated as 35 x 418).
• Allotment Timeline: According to the IPO schedule, the Medi Assist IPO share allotment is expected to be finalized on January 18. 
• Medi Assist IPO Listing Date: The public offer is anticipated to debut on BSE and NSE on the 22^nd of January, 2024.
• Medi Assist GMP: According to market observers, shares of Medi Assist are trading at a grey market premium of Rs 30 (a premium of 7% over IPO price) as of today.

Medi Assist Subscription Status

The IPO of Medi Assist Healthcare Services received 54% subscription on the first day of bidding. The Rs 1,171.58 crore IPO received bids for 1,05,68,425 shares against 1,96,19,719 shares on offer.

The category for Retail Investors (RIs) got subscribed 89% while the quota for non-institutional investors (NII) saw 45% subscription.  

Before the IPO's launch, Medi Assist raised Rs 351.5 crore through its anchor book issue on Friday, January 12. Marquee names in the list of anchor investors included Nomura Trust, Goldman Sachs, Ashoka Whiteoak, Pinebridge Global Funds, Troo Capital, and HSBC. 

About Medi Assist

Medi Assist Healthcare Ltd specializes in providing third-party administration (TPA) services to insurance companies via its wholly-owned subsidiaries, including Medi Assist TPA, Medvantage TPA, and Raksha TPA. The firm plays a key role in bridging the gap between (a) insurance firms and their policyholders, (b) insurance companies and healthcare providers like hospitals, and (c) the government and public health scheme beneficiaries.

As of September 30, 2023, the firm had partnerships with 35 insurance companies both in India and abroad. In FY23, it handled health insurance premiums amounting to Rs 14,574.64 crore, covering both group and retail segments and provided services to over 9,500 group accounts spanning various sectors, assisting in the administration of their employees' insurance needs. 

Strengths

• Dominance in Health Insurance Market: In FY23, Medi Assist commanded a significant 26.4% share of India's group health insurance market, nearly five times the market share of its closest competitor in the sector serviced by third-party administrators in FY22.
• Strong Financial Performance: The firm exhibited remarkable growth from FY21 to FY23, achieving a Compound Annual Growth Rate (CAGR) of 25% in Revenue from Operations, 26% in EBITDA, and 41% in Net Profit.
• Impressive Return Ratios: As of FY23, its  Return on Net Worth (RONW) stood at 19.63%, while the Return on Capital Employed reached 24.95%.
• Substantial Growth in Premium Management: The premium under management witnessed a 36% CAGR growth, escalating from Rs 7,918.5 crore in FY21 to Rs 14,574.6 crore in FY23.
• Established Insurance Company Relationships: The firm has maintained long-term relationships with insurers, averaging 20 years with 4 PSU insurance companies and 9 years with 23 non-PSU insurers as of September 30, 2023.
• Increasing Market Share: Its share in managing retail and group benefits administration premiums from non-PSU insurers rose from 14.65% in FY21 to 21.26% in FY23, further increasing to 24.33% by September 30, 2023.
• Shareholder-Oriented Approach: The firm demonstrates a commitment to its shareholders through consistent dividend distributions, with payouts of 50% in FY22, and 37.8% in both FY23 and the period ending September 30, 2023.

Key Concerns 

• Client Dependence: Medi Assist’s income heavily relies on a few clients. In FY23 and the first half ending September 30, 2023, its top five clients made up 77.97% and 71.03% of its contract revenues, respectively. Losing any of these clients could significantly impact the business.
• Industry-Specific Reliance: The firm’s reliance on specific industry group accounts is notable. In FY23, and the first half of FY24, the IT/ITES sector accounted for 45.68% and 46.11% of the total premiums from its top 50 group accounts, while the BFSI sector contributed 20.57% and 22.53%, respectively. Negative shifts in these sectors could harm the business.
• Regulatory Compliance Issues: Its subsidiaries, Medi Assist TPA, Raksha TPA, and Medvantage TPA, have previously been issued show cause notices by IRDAI. Failure to comply with IRDAI regulations could negatively affect the business.
• Legal Challenges:  The firm, its directors, promoters, and subsidiaries are involved in legal proceedings, including two criminal cases against subsidiaries and one against directors. Any adverse court or tribunal decisions could impact the business.
• Cash Flow Concerns: As of September 30, 2023, it experienced negative cash flows from operations. Persistent negative cash flows could significantly hamper its operational capabilities and growth strategies.
• Statutory Payment Issues: The firm has had issues with timely payments of statutory liabilities, including provident fund, labour welfare fund, and tax deductions. Continued defaults or delays could lead to financial penalties.

Our Verdict: Subscribe 

Medi Assist has shown impressive financial growth and solidified its position as a market leader in India’s group health insurance market, along with a history of generous dividend payouts. In terms of valuation, the IPO may appear somewhat expensive, with a Price-to-Earnings (P/E) ratio of 38x based on FY23 earnings. However, even though the valuation might seem pricey compared to the return ratios, the premium pricing is considered reasonable in light of the company's steady revenue generation and its prominent position in an expanding industry. 

Considering the favourable industry trends and the firm’s advantageous position, the stock is anticipated to yield good returns in the long term. Therefore, it would be prudent for investors to consider subscribing to the IPO with a long-term investment outlook.

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