Medi Assist Healthcare IPO review (Apply)

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Review By Dilip Davda on January 10, 2024

•    MAHSL is the leading TPA in insurance sector with niche place and offers technology based services.
•    It posted steady growth in its top lines for the reported periods. 
•    Down trend for H1-FY24 is attributed to accounting adjustments for recent acquisitions that dented its margins.
•    The management is confident of returning on track in coming two to three quarters once all required settlements are accounted for. 
•    Investors may consider parking of funds for the medium to long term rewards in this unique leader that is poised for bright prospects ahead. 

ABOUT COMPANY:
Medi Assist Healthcare Services Ltd. (MAHSL) was incorporated as Net Logistics Private Limited and its business and operations are conducted through the Company and its nine Subsidiaries. Its subsidiaries operating in India which are engaged in activities as a TPA are subject to regulation by the Insurance Regulatory and Development Authority of India.

Its business is conducted through the Company, Medi Assist Healthcare Services Limited, which is a holding company and proposed to be listed following the Offer, and through its nine Subsidiaries of which four are direct Subsidiaries and five are indirect Subsidiaries. It provides third party administration services to insurance companies through its wholly owned Subsidiaries, Medi Assist TPA, Medvantage TPA (from February 13, 2023) and Raksha TPA (from August 25, 2023). A third party administrator (TPA) is an organization that processes health insurance claims for insurance companies and provides services such as policy administration, customer service and network management, among others.

As a third party administrator, the company acts as a facilitator between (a) insurance companies and their policy holders, (b) insurance companies and healthcare providers (such as hospitals), and (c) the Government and beneficiaries of public health schemes. Its Subsidiaries, Medi Assist TPA and Medvantage TPA, contributed to 96.32% of its revenue from contracts with customers in the Financial Year 2023 and Subsidiaries, Medi Assist TPA, Medvantage TPA and Raksha TPA contributed 92.98% of revenue from contracts with customers in the six months ended September 30, 2023. Medi Assist TPA had a market share of 14.83% of the retail health insurance market and 41.71% of the group health insurance market, and a cumulative retail and group segment share of 33.67% serviced by third party administrators, as of Financial Year 2022 (Source: F&S Report). The company managed Rs. 14574.65 cr. of health insurance premiums (group and retail) as at the end of Financial year 2023 growing at a CAGR of 35.67% from Rs. 7918.49 cr. as at the end of Financial Year 2021. As of September 30, 2023, it worked with 35 insurance companies in India and globally.

MAHSL also facilitates other healthcare and ancillary services such as hospitalization services, call centre services, customer relations and contract management services, billing services and claims processing services through the Company and its other Subsidiaries, IHMS, Mayfair India, Mayfair UK, Mayfair Group Holding, Mayfair Philippines and Mayfair Singapore. It has developed a Pan-India healthcare provider network which comprises 18,754 hospitals across 1,069 cities and towns and 31 states (including union territories) in India and network across 141 countries globally, as of September 30, 2023.

Its technology-driven infrastructure and services are custom-built, and assist various stakeholders such as insurance companies, hospitals, insurance brokers and insurance agents in their operations, and are scalable, comprehensive, easy to use and secure. This enables MAHSL to offer a comprehensive healthcare solution to its customers, encompassing an extensive in-patient and out-patient network, on-demand health services, robust management of fraud, waste, and abuse, as well as effective medical inflation control.

The company serviced over 9,500 group accounts across sectors to help administer the insurance requirements of their employees. As of March 31, 2023, Medi Assist TPA and Medvantage TPA managed around Rs. 128.18 billion of group health insurance premiums, representing 27.61% of India's overall group health insurance market (Source: F&S Report). Its market share in the overall group health insurance market serviced by third party administrators was nearly five times that of its nearest competitor in the Financial Year 2022 (Source: F&S Report). 

The company also service individual insurance policyholders, and for the Financial Year 2023, it managed Rs. 17.57 billion of premiums for the retail health insurance market, representing 5.06% of the overall retail health insurance market in India (Source: F&S Report).

During the Financial Year 2023, it helped settle 5.27 million claims, comprising 2.44 million in-patient claims and 2.83 million domiciliary or out-patient claims. During the six months ended September 30, 2023, the company helped settle 3.05 million claims, comprising 1.37 million in-patient claims and 1.68 million domiciliary or out-patient claims. Due to the size and scale of its operations and contracting capabilities, MAHSL is able to negotiate discounted rates with hospitals for the benefit of insurance companies and insured members, thereby managing medical inflation better.

Its growth has typically been driven by multiple factors, including organic growth from existing clients and new account additions. In addition, it has pursued inorganic growth strategies to consolidate its market share in India and serve the overseas requirements of clients. It continues to explore opportunities for growth in order to consolidate its leadership position and further expand its market share through strategic M&A activity. In the last eight years, it has successfully completed several acquisitions, including the acquisition of Dedicated Healthcare Services TPA (India) Private Limited, which merged with Medi Assist TPA with the appointed date of October 1, 2016, the acquisition of third party administration business of Medicare Insurance TPA Services (India) Private Limited pursuant to closing agreement dated June 29, 2018, the acquisition of IHMS, Mayfair India and Mayfair UK pursuant to share purchase agreements each dated October 12, 2022, the acquisition of Medvantage TPA pursuant to share purchase agreements dated September 14, 2022 and IRDAI approval dated January 2, 2023 and the acquisition of Raksha Health Insurance TPA Private Limited pursuant to share purchase agreement dated March 22, 2023 and IRDAI approval dated August 4, 2023, to further strengthen its presence in group and retail schemes and expand its offerings globally. 

Mayfair UK is a global benefits administrator based in the United Kingdom and has a track record of over two decades in managing healthcare benefits for members across the globe, with a client base comprising of several Indian multinational organizations. Mayfair UK works with Indian and global insurers, and managed members across 140 countries in the six months ended September 30, 2023. Medvantage TPA is a third party administrator focused on catering to group accounts and has a client base of several large Indian and multinational organizations. Raksha TPA is also a third party administrator with an established group and retail benefits administration business.

The company service individual insurance policyholders and act as the intermediary between the insurance companies, hospitals and the insured members. Its retail premium managed increased from Rs. 1097.57 cr. for the Financial Year 2021 to Rs. 1756.78 cr. for the Financial Year 2023 and has grown at a CAGR of 26.52%. For the Financial Years 2021, 2022 and 2023 and the six months ended September 30, 2023, its revenues attributable to retail portfolio were 15.33%, 14.72% and 11.29% and 10.98% of its revenue from contracts with customers, respectively.

As of March 31, 2023, it serviced 15 government-sponsored insurance schemes covering over 177.53 million lives. As of September 30, 2023, it served 17 government-sponsored insurance schemes. The company service its insurer clients, group accounts and the insured members, among others, through its network of 97 branches spread across 18 states in India, as of September 30, 2023.

As of September 30, 2023, it engaged 6,219 personnel (of which 4,840 personnel were full-time employees), including personnel on contract.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a pure secondary issue of 28028168 equity shares of Rs. 5 each to mobilize Rs. 1171.58 cr. at the upper end. It has announced a price band of Rs. 397 - Rs. 418 per share. The issue opens for subscription on January 15, 2024, and will close on January 17, 2024. The minimum application to be made is for 35 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. This being an Offer for Sale (OFS), no funds are going to the company. It has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. The issue constitutes 40.70% of the post-IPO paid-up capital of the company. The OFS is being done for providing partial/full exit to some of its existing stakeholders and unlocking the benefits of listing. 

The four Book Running Lead Managers (BRLMs) for this IPO are Axis Capital Ltd., IIFL Securities Ltd., Nuvama Wealth Management Ltd. and SBI Capital Markets Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 26595.75 - Rs. 251175 between July 2011 and March 2021. It has also issued bonus shares in the ratio of 925 for 1 in April 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.20, Rs. 0.31, Rs. 15.42, Rs. 15.59, Rs. 15.64, Rs. 15.99, Rs. 27.23, Rs. 31.07 and Rs. 58.12 per share. 

This being an OFS, the post-IPO paid-up capital will remain same at Rs. 34.43 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2878.32 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/ net profit of Rs.345.57 cr. / Rs. 38.01 cr. (FY21), Rs. 412.02 cr. / Rs. 63.47 cr. (FY22), Rs. 518.96 cr. / Rs. 75.31 cr. (FY23). For H1 of FY24 period ended on September 30, 2023, it marked a loss of Rs. 24.26 cr. on a total income of Rs. 312.03 cr. The net profit is as per restated and on continuing operations data basis. 

It marked a setback for H1 of FY24 in PAT despite surge in its top line. As per restated data, it posted a total income of Rs. 312.03 cr. with a net profit of Rs. 24.26 cr. against a total income of Rs. 248.14 cr. with a net profit of Rs. 36.77 cr. for the previous corresponding period. According to the management, on account of higher provisions for depreciation and amortization expenses as well as other expenses for adjustments on recent acquisitions, the net profit declined for H1 of FY24. Once all required adjustments are settled, the bottom line will shoot up in coming two to three quarters. As per restated financial data for H1-FY24, excluding the amortization and other adjustments, its PAT stands at Rs. 45.26 cr.

For the last three fiscals, the company has reported an average EPS of Rs. 9.06 (from continuing and discontinued operations) and 9.40 (from continuing operations), an average RoNW of 17.46% (from continuing and discontinued operations) and 18.22% (from continuing operations). The issue is priced at a P/BV of 6.91 based on its NAV of Rs. 60.51 as of September 30, 2023, as well as on post-IPO basis (at the upper cap).

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 59.29, and based on its FY23 earnings, the P/E stands at 38.21. Based on restated net profit of Rs. 45.26 cr. for H1-FY24 with annualized earnings attribution to post-IPO equity capital, the P/E is 31.79. Thus the prima facie, the issue appears fully priced. Perhaps it is asking premium for its unique play and place and its first mover tag.

For the reported periods, the company has posted PAT margins of 11.00% (FY21), 15.40% (FY22), 14.51% (FY23), 7.77% (H1-FY24), and RoCE margins of 20.43%, 22.02%, 24.95%, 11.23% respectively, for the referred periods. 

DIVIDEND POLICY:
The company has paid a dividend of 50% for FY22, 37.80% for FY23 and 37.80% for period ended September 30, 2023. It has adopted a revised dividend policy in June 2023, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The four BRLMs associated with the offer have handled 92 public issues in the past three years, out of which 29 issues closed below the offer price on listing date. 

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