Standalone health insurer Star Health & Allied Insurance Co. is opening its initial public offering (IPO) to raise ₹7,249 crore on Tuesday. The Rakesh Jhunjhunwala and Westbridge Capital-backed company has priced its shares at `870-900, valuing the insurer at around `50,000 crore. In an interview, chairman and chief executive officer V. Jagannathan spoke about the timing of the IPO, valuation, growth prospects and the culture of having widespread ownership through employee stock options. Edited excerpts:
Did the hyperactivity in the IPO market this year play a role in your decision to go public now? Many insurance companies went public in 2017; did you think about an IPO back then?
Today, we have about 779 branches and 562 single-person stations. If we had gone public a few years back, we would not have been completely ready. Today, I can say that branch-wise, technology-wise, product-wise, systems and procedures-wise, and in terms of expansion plans, everything is in place. And now, we need to grow further. So, how long can you go on asking money from your father? At some stage, you have to stop. We think now the company has become a strong entity, it has become an adult.
Recent weeks have seen fresh concerns over valuations of IPO-bound companies. Star’s valuation has almost doubled from its pre-IPO round earlier this year to `50,000 crore. Does the performance justify this number?
Two things. One, what valuation? Of course, that has been decided by the bankers taking into consideration various analytical points. Now, the other question is whether the company will be sustainable at this valuation. Today, despite covid and everything that has happened, we could maintain a growth of 27% on such a large base. We are focused on three things. One thing is customer satisfaction because they are our paymasters. Second thing is investors, who have taken us from `108 crore to what we are worth today. Third, we have to take care of our employees. It is not just important to give returns to investors, we have to also take care of our employees. We have consecutively made profits in 2017-18, 2018-19 and 2019-20. The value of an insurer is in the underwriting profit, not in investment profits.So you have to understand that we are for our investors, for our staff and our clients.
Covid led to a spurt in health insurance. But can you sustain this growth?
Today, my growth rate is 27%, crossing the peak of covid time. The months so far are slow-growth months and the months ahead of us are our high-growth months. If you look at data, very little percentage of the middle income group is insured today. So, there are enough fishes in the sea. That is also the group which suffers in case of a health eventuality. They go down to the low income group and the low income group goes to the below poverty line. So, this group has started realizing the importance of health insurance during covid times. After food, cloth and shelter, India has also understood that insurance is also very important. In health insurance, two things are very important—service and spread. We have both.
Will not having a large financial insurance parent like other bank-sponsored companies become a handicap for you in the long run?
That’s not the problem; we are the number one in retail. As far as health insurance is concerned, you want to have absolute focus. People like health insurance to provide health insurance; otherwise, it is like we are playing five musical instruments at the same time. Actually, I think not having a large financial institution’s backing is an advantage. When we started a standalone health insurer, people thought that something was wrong with us. Now everybody is correcting themselves. And when I started the first settlement, then again, everybody had doubts and now everybody is having an in-house settlement.
But not having the big brand’s backing causes a challenge to hire and retain the best talent?
Our management is entirely highly professional. We have given Esops (employee stock option plans) up to the branch manager and sales manager level, which is unprecedented in the industry. So, our employees have a sense of belonging to the company and we look after them very well.
We have built the systems in such a way that everywhere, we have consultative management. I could not have single-handedly built the company to what it is today. We have given Esops to around 3,000 employees out of our total strength of over 14,000 employees.
Given that the company is largely owned by private investors who would seek an exit at some point of time, will investors have concerns over future ownership of the company?
Rakesh Jhunjhunwala is not selling any shares at all. Today, his investment is worth 6x, if he thought the company would not sustain, he could have sold and left. But he is not selling a single share. Westbridge is offloading shares because they have to make some adjustments in their books.