Poor demand for Star Health’s IPO forces investment bankers to cut down on promoter offerings; GMP at ₹10 discount

• The health insurer’s IPO was not fully subscribed even after extending the cut-off time of the issue by a few hours.
• The IPO was subscribed just 79% as of 7 p.m., on December 2.
• Following this development, Star Health’s grey market premium went into negative with ₹10 discount over the higher issue band of ₹900.

After failing to get fully subscribed on the last day of the initial public offering (IPO), investment bankers at Rakesh Jhunjhunwala-backed Star Health and Allied Insurance have decided to cut down on offer for sale (OFS) shares, said a source close to the development. When promoters and shareholders in the company sell their stake to the general public, it is called an offer for sale.

On the last day, i.e., December 2, since the issue was only subscribed 79%, the IPO was extended till 7 p.m. Even after pushing the cut-off time, the results were disappointing as the IPO was not fully subscribed.

Business Standard report said that the OFS portion will be reduced to around ₹4,400 crore from ₹5,249 crore earlier.

The health insurer’s IPO pricing of ₹870 to ₹900 is one of the reasons why investors were not willing to pay the price as valuations seem pretty expensive to many. Analysts and brokerages had raised their concerns on the high valuations of the insurance company.

In fact, the company was offering investors shares at five times the price that marquee investor Rakesh Jhunjhunwala had paid in 2018. He had bought 7.68 crore shares for a 14% stake in Star Health and Allied Insurance at an average price of ₹156.28 per share.

Following this development, Star Health’s grey market premium went into negative at ₹10 discount over the higher issue band of ₹900.

Rajnath Yadav from Choice broking firm thinks the IPO could have been cheaper. “At a higher price band of ₹900, Star Health is demanding a market cap-to-net premium earned multiple of 10.3 times, which is at premium to the peer average. Moreover, the demanded valuations are at elevated premium to recent capital issuance,” said the analyst.

Besides, the company reported a loss of ₹825 crore in FY21 for the first time in three years because the pandemic increased the number of claims leading many insurers to post losses last year.

SEE ALSO:Anand Rathi IPO was subscribed 160% on Day 1, today is the second day to subscribe

Last day to subscribe to Tega Industries’ IPO — GMP at ₹410