Star Health IPO struggles to garner subscription

Star Health and Allied Insurance Company is struggling to garner bids for its ~7,250-crore initial public offering (IPO), the eighth biggest in the domestic market. The offering was subscribed 20 per cent on Wednesday, the second day.

The bulk of the bids in any IPO come on the final day. However, subscription patterns suggest the country’s largest private health insurer could struggle to reach 100 per cent subscription on Thursday. For one, not even a single domestic institutional investor (DII) has applied so far, data disclosed by stock exchanges show. The majority of bids have come from retail investors, who only have a 10 per cent quota, as against 35 per cent for institutional investors. Star Health has already allotted shares worth ~3,217 crore to anchor investors. In that segment, only one mutual fund (MF) applied, Edelweiss MF, and that for less than ~15 crore worth of shares.

The majority of the bids in the anchor category came from global funds like the Government of Singapore (allotment of ~250 crore), The New Economy Fund (~223 crore) and Baillie Gifford (~250 crore). The IPO comprises ~2,000 crore fresh fundraise and an offer for sale worth nearly ~5,250 crore. Analysts said DIIS are giving the IPO a miss as they think the valuation is expensive. “Considering September 30, adjusted book value per share of ~90.35 on the post-issue basis, the company is going to list at a price-to-book of 9.96 times, with a market cap of ~51,796 crore. Its peers ICICI Lombard and New India Assurance are trading at P/B of 8.25 times and 0.71 times, respectively. We assign an ‘avoid’ rating to this IPO as the issue is expensive as compared to its peers,” said a note by Marwadi Shares and Finance. Under the Sebi rules, at least 90 per cent subscription is required for the IPO to be successful. An investment bank handling the IPO said it is confident the issue will get full subscription.