IPO Analysis: Medi Assist Healthcare Services Ltd

IPO Rating: Apply for the long-term

About the Issue:

Medi Assist Healthcare Services Limited operates as a health-tech and insurance-tech firm. It is launching its initial public offering (IPO) for equity shares valued at Rs 5 each. The IPO price range is set between Rs 397 and Rs 418 per equity share, resulting in a total issue size of Rs 1,171.58 crore at the upper price band.

The IPO is scheduled to commence on January 15, 2024, and will conclude on January 17, 2024. The market lot size for the IPO is 35 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 455 shares or a total investment of Rs 1,90,190 assuming the upper price band. 

Objects of the Issue

Considering that the issue is exclusively an offer for sale, it is crucial to note that the company will not directly profit from the offer proceeds. Instead, all offer proceeds will flow to the selling shareholders, distributed in accordance with the number of offered shares they sell as part of the offer. The company seeks to harness the advantages that come with listing equity shares on the stock exchanges.

Promoter holding

Dr Vikram Jit Singh Chhatwal, Medimatter Health Management Private Limited and Bessemer India Capital Holding II Ltd are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 67.55 per cent in the company. 

Company profile

Medi Assist Healthcare Services Limited operates as a health-tech and insurance-tech firm, delivering third-party administration services to insurance companies through its wholly-owned subsidiaries, namely Medi Assist TPA, Medvantage TPA, and Raksha TPA. The company handles the processing of health insurance claims for insurance providers, offering various services including policy administration, customer support, and network management.

In its role as a third-party administrator, the company serves as an intermediary connecting (a) insurance companies with their policyholders, (b) insurance companies with healthcare providers like hospitals, and (c) the government with the beneficiaries of public health schemes.

As of the end of the financial year 2023, the company successfully handled health insurance premiums amounting to Rs 14,574.64 crore, encompassing both group and retail policies. This marked a notable growth, with a CAGR of 35.67 per cent since it stood at Rs 7,918.49 crore at the end of the financial year 2021. Additionally, as of September 30, 2023, the company collaborated with 35 insurance companies, operating both within India and on a global scale.

The company has established an extensive healthcare provider network spanning across India, encompassing 18,754 hospitals situated in 1,069 cities and towns, spread across 31 states and union territories, as of September 30, 2023. Furthermore, it has a global network extending to 141 countries.

Financials 

The company has consistently demonstrated strong performance in both revenue and net profit, registering a notable 25 per cent growth in revenue and a 19 per cent rise in net profit for the fiscal year 2023 compared to the last fiscal year, FY22.

While the positive trend in revenue figures has persisted into the first half of the fiscal year 2024 (H1FY24), there is a potential concern regarding the annualized net earnings for FY24. If extrapolated, the annual net earnings for FY24 might fall below expectations when compared to the figures achieved in FY23.

According to the management, the decline in net profit for the first half of FY24 is attributed to elevated provisions for depreciation and amortization expenses, along with other adjustments related to recent acquisitions. However, they anticipate a positive turnaround in the bottom line in the upcoming quarters once all necessary adjustments are resolved.

The company boasts a return on equity (RoE) and return on capital employed (RoCE) of 20 per cent and 25 per cent, respectively, for the fiscal year 2023.

Valuation and outlook

The issue is priced with a P/BV ratio of 6.91 times, calculated using its Net Asset Value (NAV) of Rs 60.51 as of September 30, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 67. The PE ratio, calculated based on its FY23 earnings, is 38. It seems that the issue is fully priced.

According to its official documents, the company has indicated that there are no listed companies in India involved in a business similar to theirs. Consequently, it is not feasible to offer an industry comparison.

The company is expected to regain its momentum once the settlements related to recent acquisitions are finalized. Following its listing, there is an anticipation that the company will attract attention, being a first mover in its segment. Given the optimistic industry outlook, the company's pre-existing network that positions it ahead of potential competitors, and a robust growth, we recommend risk-taking investors to consider subscribing to the issue with a long-term perspective.