US insurer Prudential and Indian billionaire Azim Premji are joining forces to challenge a consortium of WestBridge Capital and Kedaara Capital, besides others, in the fight for a controlling stake in Star Health and Allied Insurance.
Competition for the asset may intensify in the wake of the National Health Protection Scheme (NHPS) proposed in the budget. The Indian health insurance market is expected to quadruple to Rs 50,000 crore thanks to the social welfare scheme, experts said.
This could drive up the valuation of the insurer beyond the Rs 6,000 crore initially estimated, when the sale process was kicked off about six months ago, drawing about a dozen bidders, said people aware of the matter. Star is the largest standalone health insurer in the country, with a 2.36% market share.
“We have formed a consortium with Prudential and are involved in the process,” said Rahul Garg, partner, PremjiInvest, confirming the development. “However, it is too early to comment on a deal as a lot of other bidders are also there.” Prudential is said to have been scouting for an Indian partner to bid for the health insurer.
Garg said Star Health offered an attractive investment prospect in the fastest-growing segment of health insurance with a wide agency distribution network. “It can easily grow at 20-25% for the next four-five years with significant operating leverage and can deliver great investment returns for the buyer,” he said.
PremjiInvest, which manages assets worth $3 billion, has been picking up stakes in financial services firms including Aditya Birla Capital, HDFC Life Insurance, ICICI Prudential Life Insurance and Policybazaar.
Private equity funds, including the WestBridge-Kedaara consortium and ICICI Lombard, are said to be among those eyeing Star Health. Other possible bidders are said to include PE giants Bain Capital and Warburg Pincus, apart from private sector insurers including HDFC Ergo. WestBridge and Kedaara did not respond to email queries. The others couldn’t be reached for comment.
Kotak MahindraBSE 0.61 % Capital was appointed by PE fund investors to manage the sale of their stakes in Star Health.
Investors in Star Health include Sequoia Capital, ICICI Venture, Tata Capital and Apis. They, along with Oman Insurance Co, own about 70% of Star Health, while the rest is held by Dubai-based investor ETA Trading.
Star Health managing director V Jagannathan, who founded the company, holds a 3.5% stake. Jagannathan said he was not aware of the bidders and had no comment to offer. Founded in 2006, Star Health has delivered strong growth in gross premium income and has maintained its leadership position amongst the standalone health insurance companies.
“For the financial year ending March 2018, the company is targeting a profit of Rs 210 crore with an underwriting profit of Rs 50 crore,’’ said Jagannathan.
It reported a growth of 48% in gross written premiums at Rs 2,962 crore in the financial year 2016-17 and is looking at a gross premium of around Rs 4,000 crore in this financial year. Star Health writes policies on personal accident, health insurance and overseas travel.
