Here is a small video from Punit Jain of JainMatrix Investments.
We have published a report on IRCTC. Its a valuable report, with a discussion around revenue segments, outlook, 3 year financial projections and a May 2025 Price Target.
Disclaimer
This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same.
This is a marketing collateral, and there is no price target here, or even a recommendation of BUY / HOLD / SELL.
Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. Registration granted by SEBI, and certification from NISM in no way guarantee performance of the RA or provide any assurance of returns to investors. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com. Name of the RA as registered with SEBI – Punit Jain, SEBI Registration No. INH200002747.
We have published a report on IRCTC. Its a valuable report, with a discussion around revenue segments, outlook, 3 year financial projections and a May 2025 Price Target.
Disclaimer
This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same.
This is a marketing collateral, and there is no price target here, or even a recommendation of BUY / HOLD / SELL.
Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. Registration granted by SEBI, and certification from NISM in no way guarantee performance of the RA or provide any assurance of returns to investors. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com. Name of the RA as registered with SEBI – Punit Jain, SEBI Registration No. INH200002747.
Lets evaluate several publicly available asset classes and try to answer this question. In addition, we will have a face off among two of the largest asset classes – Real Estate and Equity. This will help investors to build clarity and help choose among these assets.
Wealth Options and Components
In this Wealth chart Fig 1, we can see various Wealth Options and Components publicly available to investors.
The old classic asset is Real Estate (RE), in the form of apartments, land, commercial property, etc.
Equity markets are a rising star asset class as the digitization processes have made it transparent and accessible. Equity subcategories are also listed. AIF funds and PMS services are also available now.
Debt, Jewellery (and Gold and precious metals) and Alternative assets are also available.
Insurance is a wealth protection asset, helping cover some risks.
Loans are a part of your wealth, however they can be taken for Appreciating or Depreciating Assets (AA/DA). Loans are better used to buy an AA like house or education, than for DAs like furniture, cars and holidays.
Fig 1 Wealth Options
Choosing among the Asset Classes
Here is a chart of Average Returns versus Risk for each of these assets, Fig 2.
Returns for each asset class vary by subclass and by time periods. Here we try to take the multi-year average for each class over 5-6 years period of time.
Equity ETFs and MFs returns are simplified as the Nifty index.
Direct equity assumes blended returns across market caps.
Fig 2 Wealth and Risk
Hence the broad principle is – You need to take a higher risk to get a higher return.
There are perhaps higher risk asset classes such as F&O and Private equity. Several Wealth Options are not seen here. Its seen that results and returns vary widely among Classes and so results cannot be generalized.
All asset classes are probabilistic in terms of returns and risks. This means that while the average returns for RE (for example) may be 8-10% per year, there can be a particular year where this may be 15-20% on the high side and (-10%) on the low side.
The choice among these assets depends upon risk appetite, comfort level and nature of the investor.
However the chart points to Equity as a higher returns asset, if we are able to manage the higher risk.
Having seen all this, the suggestion to the new investor is to try some of these asset options in small quantities to get a better understanding. Here RE is difficult as it is a big ticket item, but the others can be bought for small sums.
A Bank savings account and a Stock broking account would be required to try out these (non RE) assets.
Real Estate versus Equity
In this section we delve deeper into the two most common asset classes – Real Estate and Equity.
Assumptions
Let’s simplify Real Estate to an apartment purchase in the person’s place of work. For own use, and as an upgrade from paying rent. Other Real Estate options such as a second house for investing or a plot for investment or commercial property are not being considered here.
Also Equity will also be simplified as Nifty index investments. Specific products such as MFs, PMS, and Direct Equity investment services such as that offered by JainMatrix Investments will not be considered here.
Comparison
In the following table we compare the Real Estate and Equity asset classes across key parameters. (Table 3)
Criteria
Real Estate – Apartment
Equity – Nifty
Ticket size
Ranges from ₹ 25 lakhs to crores depending on city and location. However if you buy with a loan, you need to pay 20% as down payment.
Generally speaking the Nifty ETF products start with ₹ 5000, and go to any number. Direct equity has no minimum.
Source for buying and selling
New apartments can be bought directly from builders. Second sale or older are from known people or with the help of real estate brokers. Aggregator websites also help with real estate information and brokers.
Buying Platform – You will need a Stock Broking account for direct equity purchase. Products like MFs and ETFs can also be bought from Bank account – investment channels. And also directly from Fund website or MF distributors.
Rating for Identifying and buying
This can be HARD and complex. Here the buyer has to identify the location, size of property, new v/s old, builder, etc. The process involves visiting potential properties, finalizing criteria, rating them, and closing the purchase, followed by registering the property.
If you decide to invest in the Nifty, it’s EASY and a simple choice of Nifty ETFs. Otherwise the rating is MEDIUM. There are 5000+ listed firms in India, but homing in to a purchase decision of 5-10-20 shares needs reading, and decisions. JainMatrix Investments provides this advisory service. Similarly choosing among MFs or PMSs.
Time and costs for Transactions
This can take anything from 2 months to a year. The cost over and above property cost may be Stamp Duty and Registration Tax for new properties, but may also include brokerage depending upon the agent or services used.
With digitalization, time to buy is very less, 1-2 days, once the buying platform is in place. Brokerage costs vary from 0.75% of purchase for full service brokers to very low for discount brokers. Other taxes are less than 0.1% except Capital Gains tax.
Selling; and Time and cost
Selling is also HARD. From a decision to sell, to actual transaction it can take from 2-6 months. Brokers, websites or personal network can help. The cost can be 1-2% of property value. There are payment risks so one has to be disciplined in the process.
Selling is EASY. The transaction happens at market rates, and funds are transferred in 1-2 days. Brokerage and other costs are similar as buying.
Total cycle time
So one can see that the total cycle time for Real Estate is long. It includes Buying time, holding period and selling time.
Varies by approach. The Nifty ETF or other equity assets can be held till the cash is required or a better investment has been found. At JainMatrix, we suggest Long Term Investments in quality companies, which allow the money to compound. However periodic pruning of a Direct Equity portfolio can be done every 6 months, to let the winners ride and exit underperformers.
Utility
An apartment in use by the owner is useful, saves rent and provides pride of ownership.
Equity investments appreciate and earn dividend. We must save for a rainy day!!
Capital Gains
Long Term Capital Gains kick in at a holding of over 2 years. Typically from buy to sell may be 8-12 years on average.
Long Term Capital Gains holding period is over 1 year.
Returns from Investing
A house to stay is a good choice in terms of stability and rootedness rather than just monetary returns. It saves on rent. Having said that, an apartment asset can give 8-10% returns on average. Fig 2.
The Nifty has given 12-14% CAGR returns over the past decade. Returns are estimated higher for Direct Equity. See Fig 2.
Real Estate versus Equity Opinion by JainMatrix
In fact both Real Estate and Equities are asset classes that can complement each other. Investments should be started early in the working life, salaried or business. These can be in Equity, as the minimum is a small ticket size. In a few years as this asset grows, and the need arises, it can help to initiate a real estate purchase.
Finally Pros and Cons of Equity
Pros
High average returns. Rising asset class.
Indian equity markets have achieved a global size, volumes and transparency.
Flexible – minimum ticket size is small, but it can scale for larger investments.
Fast yet robust – digital enablement now allows a stock broking account to be as easy and convenient to handle as a savings bank account. Buying, selling and dividend transactions also happen digitally. Websites and mobile applications have also improved access and ease of navigation.
Tax friendly – the tax rules are encouraging for equity with just 1 year for Long Term Capital Gains, LTCG not being taxed until it crosses a certain sum, and ability to set off losses one year with gains in another year.
Several equity products like Direct Equity access, MFs, PMS, small case and advisory services allow flexible access to all kinds of investors. See Fig 4.
Cons
Equity investors are exposed to market risks, and also industry and company specific risks like fraud, global events, war, weather, currency, etc.
Fear and Greed are driving forces in equity markets, and equities can alternate between expensive (excessively high valuations) and cheap (too low valuations).
Patience is a virtue, and expecting quick returns can be detrimental for investors.
Short term Trading versus Long Term Investing is also a difficult choice for those new to equity markets.
Conclusion
Equity penetration in India is low due to lack of access to stock brokers, pre existing fears of stock markets, inertia and invisible nature of equity assets. However a look at developed markets shows that penetration is as high as 50% compared to India’s 5-6%. Further, financialization of Indians’ assets has begun, with We expect steady growth of equity penetration and
Glossary
AIF – Alternative Investment Funds are SEBI regulated and pools of funds from specific investors as per a previously defined investment policy. Next version of Mutual Funds
PMS – Portfolio Management Service.
MF – Mutual Fund
ETF – Exchange Traded Fund – a type of MF which is passively managed, and usually shadows a well-known Index or commodity. It typically has lower management fees compared to actively managed MFs.
My Standard Disclaimer
Investment in securities market are subject to market risks. Read all the related documents carefully before investing. This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from a RIA – Registered Investment Advisor.
Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com
An Indian investor is free to invest in any of 5000+ stocks listed on the exchanges.
He may have a range of needs in his equity portfolio, which we have captured in a hierarchy.
He may like to progress on this range and exercise his choices in a calibrated fashion
Introduction
I was speaking to an investor a few weeks ago. A busy executive, he had a medium size equity portfolio by value. But I was astonished to see that he had almost a hundred shares in his Demat account. And he looked at me and asked, “So what should I do with my portfolio?” I was of course on a tight time schedule, and ran through my 4-5 step standard template for portfolio discussions.
A little later, on reflecting on the above question, I realized that the answer to the above question can be very nuanced. And really there can be multiple approaches and answers to this question.
Let’s step back to the very basics of the question, what does a person need from his equity portfolio?
An Equity Portfolio – A Hierarchy of Needs
To answer this question, we need to draw parallels from the Maslow’s hierarchy of needs, and it is summarized below. Expressed simply, every human can have a number of needs, but at different times in his life, and in different situations, the needs change. Generally speaking, the needs follow a hierarchy.
An Equity Portfolio – A Hierarchy of Needs. Source: JainMatrix Investments. Click to enlarge.
In a similar way as Maslow’s needs hierarchy, a person’s equity portfolio reflects different needs in investing and his ability to focus efforts and achieve his personal needs and objectives. Here are the levels that I am able to present:
Gain Control: I have seen many equity portfolios that are nothing more than a legacy of 15 years of sporadic investment enthusiasm. With funds available and a pep talk by anyone, individual investors may make a series of purchases. This may be followed by 6 months of watching the results unravel, followed by 4.5 years of inaction. All of which may be repeated again. As a result the shares may be an uncoordinated mass of choices from the past. Selling is more difficult than buying.
It may seem that ‘Do nothing’ is an option here. After all these stocks can sit in your portfolio for another 5 years, and your carrying cost is as less as Rs 1000/year. Wrong. If you are not in the right stocks for a ‘long only’ portfolio, chances are that over time your portfolio will decay in value rather than strengthen.
The task of the Investor (along with his portfolio adviser) would be to try and gain control of this portfolio. The basic issues here are –
1. What’s the objective and primary need of this portfolio?
2. How many shares are we comfortable with?
3. Whats the risk appetite and profile of the investor?
4. How do we achieve these 1, 2 & 3, and in what time frame?
Also essential to Gain Control, is the need to identify and exit the low potential stocks.
In my opinion even stable long term (example – avg. holding of 10 years) investment portfolios should be reviewed once a year to align with macro/ sector events and to evaluate opportunities.
Absolute Returns and Profits: Typically equity trading has a very clear objective, of maximizing returns from any trade. Similarly we obviously invest money with the plan of gaining profits and building wealth. The question here is, over what time span? One hour? One week? One year? A decade? New investors are typically looking for a simple quick absolute return.
For an investor, the portfolio strategy here is to simply find the shares that have a high confidence rating of highest upside potential. To find such shares is an ongoing exercise. Many successful finds for example may achieve their potential and may not be investment worthy any longer. Others may continue appreciating for decades. However this exercise is also fraught with risks. Many highly rated shares may fail. Or a sector may be affected by an unexpected event.
Its critical here to not just understand a target investment firm for its financials, management and business assets, but also the sector and macro context of this firm.
Safety and Stability: Very soon a trader/ investor may realize that just desire for profits and available funds is not enough. One has to approach investing with a safety plan, and temper high profit expectations with realistic back up plans and a safety net. Am I taking too high a risk, with the possibility of a big loss? What’s my worst case scenario? What risk am I comfortable with? And for how much of my portfolio? With some experience, an investor is able to balance the profit expectation with an understanding of risk, and build his checks and balances.
For some thoughts on Risk v/s asset classes see LINK.
Every asset class has an associated risk. And a good fundamental researcher can assess and understand this risk well. So for a long term equity investor to have a 100% returns per annum expectation is asking for too much. He may actually get it but only once or twice in a decade. And this may soon be followed by a hurtful loss, equally unexpected.
A good equity Portfolio should be able to limit equity holdings within individual firms and within a sector, and also align the market cap focus with risk profile such as Safety – large caps, Higher risk – mid caps and Aggressive – small caps.
Belonging: Community, Region, Profession, etc: At another level of the investment hierarchy, a wealthy investor may start thinking of his investments not just as a means to grow wealth, but as an expression of his place in society. This means the person is focusing a part of his funds towards the things that are important to him, an extension of his personality.
This could perhaps mean that for a Bangalore based person like me, I could invest in firms like Titan, Brittania Industries, BF Utilities, Mindtree, etc. which are local firms. I may get a feeling of pride to see these firms doing well, and even though a small shareholder, would be sharing a part of a big success.
Similarly as a former software executive, I may like to invest in a few software small caps that I not just understand well but also hope that my ownership in a small way can contribute to its success. It’s more about encouragement and support than just returns.
In terms of an exclusion list, a lot of people may be uncomfortable about investing in sectors such as cigarettes and liquor/alcohol. Its really upto the investor to be comfortable with his investments, right?
Self Actualization: A wealthy investor may actually decide to focus his funds towards doing real good, or addressing problems of society. In the past the only way one could do this was in making donations to NGOs, and Education or Religious Trusts. In today’s economy there are several listed corporates that address the needs of the weaker sections of society, or of the environment, and still have an objective of making profits for shareholders. I see no essential compromise in achieving both these objectives. There is, possibly, “A Fortune at the bottom of the Pyramid”.
I believe firms in sectors like education, environment, renewable energy and some NBFC’s in housing finance and micro-finance may be addressing and solving large problems of society.
Readers are invited to revert to me with their ideas or suggestions of such firms that they have come across.
In Conclusion
Different investors may have vastly different needs in their equity portfolio, and we have mapped these in the form of a simple hierarchy. Many of us could be frozen in inaction at Stage 1 of this hierarchy. Others may have progressed along the stages and gained control and solid wealth from it. Some may actually have a portfolio that expresses their hopes and dreams for their society. Its essential for an Investor to reflect objectively about his own portfolio and think about improvements.
So where are you in this hierarchy? Drop me an email to see if I can help you with aligning your Equity Portfolio to your own needs. See Portfolio Review for a short description of our services.
This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. Many firms are mentioned in this report, and it should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com
Date 30th Nov; IPO Opens 30-2nd Dec, at ₹ 870-900/share
Large Cap: ₹51,800 cr. Mkt cap; Sector – Insurance, Health
Advice: SUBSCRIBE
Why Buy Now: The waves of Covid have pushed SHI into losses but 1) we do not anticipate more severe waves in future, and 2) SHI should be able to recover through faster business growth and adjustment of prices for the covid pandemic. By having an IPO at this time, investors have an opportunity to buy SHI at low valuations We expect profitability in SHI by 2022, even as it grows rapidly in revenues and network. Once this happens, this IPO entry price will look reasonable.
Risks: 1) Loss making entity, so this is a risky investment opportunity 2) Uncertain covid outlook 3) high competition 4) New infectious diseases 5) regulatory uncertainty.
Opinion: Investors with a risk appetite can SUBSCRIBE to this IPO with a 2 year perspective.
Here is a note on Star Health and Allied Insurance IPO (SHI).
IPO Highlights
Star Health IPO will open from Nov 30 – Dec 2 with a price band of ₹ 870 – ₹ 900.
The firm will raise ₹ 7,249 crores, including fresh issue ₹ 2,000 cr. and offer for sale 5.83 cr. shares by promoters & shareholders, for max. ₹ 5,249 cr., together 14% of post IPO shareholding.
Star Health is looking for a market cap of ₹ 51,796 cr.
Promoters currently hold 66.22% stake and post-IPO this will come down to 58.3%. Public holding will increase from the current 33.78% to 41.70%. The quotas are QIB 75%, NII 15%, and Retail 10%.
Promoters of Star Health are Safecrop Investments India LLP, WestBridge AIF I and Rakesh Jhunjhunwala. The shareholders selling shares in the IPO include promoter Safecrop Investments India LLP, and many other (public) shareholders.
The grey market premium (GMP) of SHI has declined sharply to below ₹ 10 per share, according to people who deal in unlisted stocks; it has fallen from ₹ 90 per share last week.
Objects – with the funds raised from fresh offering, SHI plans to augment the company’s capital base and maintain solvency levels.
One lot size is 16 shares and Face Value is ₹ 10. Retail investors can bid for one or more lots, and a minimum of ₹ 14,400 or multiples of this, upto a maximum of ₹ 1,87,200 for 13 lots and 208 shares.
Introduction to Star Health and Allied Insurance
Star Health and Allied Insurance is the largest private health insurer in India with a 15.8% share in FY21 (CRISIL Research). Started in 2006, it is #1 based on health GWP over 3 years.
It had retail health GWP of ₹ 9,349 cr. in Fiscal 2021. SHI made a loss for the first time in 3 years in FY21 even as revenue rose, due to Covid.
Its health insurance product suite insured 2.05 cr. lives in retail and group health, which accounted for 89.3% and 10.7%, resp, of total health GWP (Gross Written Premium) in FY21.
It has a distribution network of 779 health insurance branches spread across 25 states and 5 UTs. Its agency distribution channel also includes corporate agent banks and other corporate agents, which accounted for ₹ 220.9 cr. and ₹ 19.1 cr., resp., of its GWP in FY21.
Promoter of SHI are Safecrop Investments India LLP, WestBridge AIF I and Rakesh Jhunjhunwala.
The proposed IPO will make SHI the fourth private sector insurance provider to list on Indian stock exchanges, following HDFC Life, ICICI Prudential Life and ICICI Lombard General.
Star Health’s total number of individual agents grew at a CAGR of 27.3% from 2.9 lakh (Mar’19), to 4.6 lakh (Mar’21) and 5.1 lakh (Sept’21). Under the IRDA (Appointment of Insurance Agents) Regulations, 2016, insurance agents are only permitted to sell the policies of three insurers: one life insurance company, one non-life insurer and one health insurer.
SHI has enabled online purchase of policies in as less as 5 minutes on website Starhealth.
SHI has already allocated ₹ 3,217 cr. to 62 anchor investors today.
Key leaders: V Jagannathan, Chairman & CEO, Dr. S. Prakash, MD (since ‘19), Anand Roy MD (‘19)
Fig 1a) Revenue Segments in FY21 and b) Industry Market Shares
Insurance 101, and Health Insurance in India
Insurance is a very useful product. There are several types – Life, Health, Automobile, Property, Farm/crop, and all kinds of asset insurance products. Products are for retail or business consumers.
Health insurance is a long term product. Having a health problem is not highly predictable, so it is bought so that in case a hospitalization happens, you are protected to the extent of Sum Assured.
Salaried employees may get Group health insurance from their employer. They should check if their families are also covered – this may be an add-on. Non salaried need to buy on their own.
The health insurance penetration in India is low at just 0.36% of GDP whereas the global average comes around 2% of GDP. Countries like the UK, China, Argentina and the United States have higher penetration level of 0.61%, 0.65%, 0.78% and 4.1%, respectively.
The players are regulated by IRDAI (Insurance Regulatory and Development Authority of India) and is subject to regulatory uncertainty and compliance requirements.
Fig 2a) Penetration
Fig 2b) Premium per person
Fig 2c) Industry segments
The average premium paid per person in India at $5 / ₹ 375 per year on average for the population.
Health in India is a split sector – the govt. of India does offer public hospitals and facilities that are free, but there are insufficient facilities in most places to cover the population. Wherever govt. facilities are insufficient or inadequate, people have to pay and use private medical services.
The Covid crisis of FY21 & FY22 has shown the importance of Health insurance. At the same time we can see India has low penetration of health cover, high out-of-pocket expenses, and only 10% of the population has insurance policies outside of government plans, according to CRISIL Research.
The total expenditure spent on healthcare by the centre and states for FY20 was 1.6% of GDP, including establishment expenditure of salaries, gross budgetary support to various institutions and hospitals and fund transfers to states under centrally sponsored schemes such as Ayushman Bharat.
Health insurance industry data shows the types of companies and product segments.
Personal experience: As a customer of the Family Floater product from SHI, I had it for several years with no claims. About 3 years ago, I suddenly had to use the insurance for a hospitalization and operation. It was a relief that these were covered. The process was easy and a doctor came to verify the patient, operation and hospital. SHI finally reimbursed about 90% of my claim.
Financials of SHI
Revenues have grown steadily, but PAT fell in FY21 & H1FY22 due to Covid.
The cash flow for SHI is shown in Fig 3b. It’s clear that FY20 and FY21 have been negative for FCF.
Fig 3a) Financials, and Fig 3b) Free Cash Flow
Benchmarking
We benchmark SHI against listed insurance firms in India, and PolicyBazaar. See Fig 4.
Fig 4 – Benchmarking
As a loss making firm, the PE is negative for SHI. As are the profits.
On sales growth we can see that SHI is close to the leader, SBI Life. New India lags here.
As a result, the key valuation parameters are P/B, EV/Sales and Mcap / GWP.
The P/B of SHI is about average. New India is valued low partly as it’s a PSU. HDFC Life is expensive.
On EV to sales, SHI is a value leader. Highest is SBI Life. On Market Cap to GWP, again SHI is the leader while HDFC Life is most expensive. On revenues, we can see that SHI is the leader. However, the loss making situation is marring the valuations of SHI on traditional parameters of PE and ROE.
Putting this together, we sense that SHI is a valuable asset available at low valuations due to the covid related losses. It’s entirely possible that post covid, SHI may emerge quite profitable.
Star Health stands out among other standalone health insurers (SAHI) in terms of size, strong growth rates (32% Gross Written Premium CAGR over FY18-21) and better operational performance which is reflected in pre-Covid numbers for the company (~93% combined ratio).
Positives for SHI and the IPO
Largest private health insurance firm in India with leadership in the attractive retail health segment.
There is low penetration of health insurance in India. Also Post covid, awareness of health insurance has risen. This category may continue to see high growth.
The famous Indian investor Rakesh Jhunjhunwala has backed SHI as promoter. As he has a large following in India, this helps with publicity and investor confidence.
India has an aggressive plan for vaccination and has covered a good proportion of population. The one dose number has crossed 100 cr. and two doses 37 cr. There is a plan for a booster dose too.
SHI has a good brand, a national presence, and the largest network distribution in health industry.
Diversified product suite with a focus on innovation and launch of new and specialized products.
Strong risk management with superior claims ratio and quality customer services.
Demonstrated track record of operating and financial performance.
Low valuations as per benchmark analysis.
The sector is divided 46-54% between PSU and private. There is ample opportunity to grow for SHI.
The second wave was better handled by people & hospitals compared to the first. With this experience, any further waves should be handled better in terms of prevention and cure.
Risks and Negatives for SHI and the IPO
In India we appear to be in a recovery from Covid, but we cannot accurately predict any 3rd/4th wave in India and the business impact of the same. Omicron is a new variant found recently also.
The company has suffered a setback for the last 18 months due to covid, and has run into losses.
In order to emerge from this crisis, SHI may have to raise the prices of its products.
There are 29 active health insurance companies in India. It’s a competitive space and thus it may be difficult for any one company to dominate or win a 40%+ market share.
Post covid, GoI may be forced to raise spending on healthcare, which is mostly free services.
The Medical Council of India has been replaced by the National Medical Commission in FY20 for the purpose of medical education and medical professionals. The poorly regulated sector has seen shortages of doctors and nurses, and hopefully this will improve in future.
Recent loss making firms that have IPO’ed had uneven results. Zomato and PolicyBazar have done well, but Paytm had a rough first week.
Overall Opinion and Recommendation
Public sector healthcare is inadequate and of insufficient capacity. With rising medical services and medicine costs there is ample demand for health insurance.
SHI has grown rapidly and is well focused on the health insurance sector.
The waves of Covid have pushed SHI into losses but 1) we do not anticipate more severe waves in future, and 2) SHI should be able to recover through faster business growth and adjustment of prices for the covid pandemic.
There is a massive growth opportunity for health insurance in India as affluence grows. This will also be driven by higher inflation in medical services.
As the largest private player, SHI has an opportunity to grow the market and service the demand.
We expect profitability in SHI by 2022, even as it grows rapidly in revenues and network. Once this happens, this IPO entry price will look reasonable.
Risks: 1) Loss making entity, so this is a private equity type, risky investment opportunity 2) Uncertain covid outlook 3) high competition 4) New infectious diseases
Opinion: Investors with a risk appetite can SUBSCRIBE to this IPO with a 2 year perspective.
Disclaimer
This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no stake ownership or financial interests in Star Health or any group company. He has been a retail customer of SHI for 5+ years. Punit Jain intends to apply for this IPO. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from a RIA – Registered Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.
‘Indian Energy Exchange is India’s premier energy marketplace, providing a nationwide automated trading platform for the physical delivery of electricity, renewables, and certificates.’ – from IEX website.
Did you know, the IEX share has gained 4X in the last one year?
This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report is marketing collateral. We have not expressed any opinion in this marketing collateral so there is no need for disclosures on IEX. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain has applied for certification under SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.
See Pricing and Payment for details, ask for the special October Large Cap only pricing.
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DISCLAIMER
This service and related documents have been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. These documents are not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst (SEBI Registration No. INH200002747) under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.
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