Niva Bupa Health Insurance IPO: A cure for your portfolio or a risky prescription?

In this analysis, we take a closer look at Niva Bupa Health Insurance Company Ltd and present you with the exclusive IPO details.

About the issue  

Niva Bupa Health Insurance Company Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are the issue details.

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Augmentation of its capital base to strengthen solvency levels.

2. General corporate purposes

Promoter holding  

Bupa Singapore Holdings Pte Ltd, Fettle Tone LLP and Bupa Investments Overseas Ltd are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 88.99 per cent in the company.

Company profile  

The company provides insurance within the healthcare sector, driven by its mission to “give every Indian the confidence to access the best healthcare.” Through its ‘Niva Bupa Health’ mobile app and website, customers can access a comprehensive health ecosystem and extensive service options.

Its products are mainly classified as follows:

1. Retail products - tailored for individuals and families.

2. Group products - crafted for employers and employees.

These offerings span across health insurance, personal accident coverage, and travel insurance.

While the company operates globally, its primary markets include the UK, Australia, Spain, Chile, Poland, New Zealand, Hong Kong SAR, Brazil, Mexico, India, the US, the Middle East, and Ireland. As of June 30, 2024, the company had 14.99 million active lives insured.

Financials 

The company has consistently delivered strong growth in revenue over the past few years. Between FY22 and FY24, the company recorded a Compound Annual Growth Rate (CAGR) of 48 per cent in revenue. When annualized, the figures from the June quarter show decent topline growth of around 9 per cent compared to FY24.

The company’s profitability improved notably, shifting from net losses in FY22 to a robust double-digit net profit in FY24. However, Q1FY25 saw a return to notable losses.

According to the Redseer Report, retail health insurance sales tend to grow slowly in the first half of the year, accelerating in the last quarter as customers seek income tax benefits. Given this seasonality, a turnaround may be anticipated in the coming quarters.

Valuation & Outlook

*RoE: Based on FY24 data

The issue is priced with a P/BV ratio of 6.19 times, calculated using its Net Asset Value (NAV) of Rs 11.95 as of June 30, 2024. At the upper price cap, it is priced at a P/BV ratio of 4.73 times, considering its post-IPO NAV.

With the company’s annualized FY25 earnings and fully diluted equity capital, the price-to-earnings (P/E) ratio remains in negative territory. Based on FY24 earnings, however, the P/E ratio climbs to hundreds of times, making this investment option appear significantly overvalued.

With other stocks available at decent valuations and delivering higher returns than Niva Bupa Health Insurance Company Ltd, the comparison loses its appeal.

The company's strengths include an impressive average ticket size per policy sold among standalone health insurer (SAHI) peers, an ability to capture a larger market segment, and its position as one of the top-selling non-life insurers on Policybazaar.com. On the other hand, risks involve stringent oversight and regulatory inspections by the IRDAI, high reliance on intermediary distribution channels, and uncertainties around future performance. In conclusion, we recommend investors avoid this IPO.