Niva Bupa Health Insurance IPO analysis

Niva Bupa Health Insurance IPO (initial public offering) will open for subscription on November 7, 2024 and close on November 11, 2024. Below is a breakdown of the health insurer's strengths, weaknesses and growth prospects to help investors make an informed decision.

Niva Bupa IPO In a nutshell

• Quality : Niva Bupa's three-year average ROE and solvency ratio (a measure of its financial health and ability to pay claims) were nearly -10 per cent and 2 times, respectively, for FY22-24.
  
• Growth : Its net premium income and net profit grew by nearly 47 and 55 per cent per annum, respectively, between FY22 and FY24.
  
• Valuation : After listing, the stock will be valued at a P/E ratio of 99 times and a P/B ratio of 4.8 times.
  
• Overview : Niva Bupa is a standalone health insurer in India's underpenetrated insurance market. Growing consumer awareness, constant medical inflation, and demand for quality healthcare will benefit the company's operations going forward. However, the ever-changing regulatory environment along with intense competition in the market from existing players and new entrants are key threats to its prospects.

About Niva Bupa Health Insurance

Incorporated in 2009, Niva Bupa is a standalone health insurance company. It is the fastest growing health insurer in the country with its net written premium growing by around 47 per cent annually between FY22 and FY24. It primarily focuses on the retail segment, which contributed nearly 67 per cent to its premiums as of June 2024, with the rest coming from group or corporate insurance.

Company's strengths

• Fast grower with solid client retention: Niva Bupa is the fastest-growing health insurer in the country as it has consistently outperformed industry growth over the last three years. The company also demonstrates significant client stickiness. Almost 90 per cent of its policyholders, on average, opted to renew their policies in the last three years.

Company's weaknesses

• Losing out on key metrics: The company lags behind peers on many key metrics. For instance, its claim settlement ratio (settled claims of total claims received) for FY24 was 91 per cent, significantly lower than the industry average of 96 per cent. Additionally, its hospital and agency network is much smaller than that of its competitors.
  
• Higher than usual expenses: The growth of health insurance in India post the Covid pandemic has led to entry of multiple players in the market. Niva Bupa's scale of operations is much smaller compared to giants like ICICI Lombard, HDFC Ergo and New India Assurance, among others.
  The competitive intensity, thus, forces the company to offer lower prices to policyholders and higher commissions to its agents and brokers, resulting in an average expense ratio (operating expenses as a percentage of net premium) of nearly 43 per cent from FY22 to FY24, which is one of the worst in the industry.

Risk report

Company and business

• Are the company's earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. The company reported a profit before tax of Rs 255 crore for 12 months ending June 2024.
  
• Will Niva Bupa be able to scale up its business?
  Yes. Growing demand for quality healthcare and medical costs will ensure growth in the highly underpenetrated health insurance market, enabling Niva to scale up.
  
• Does the company have recognisable brands truly valued by its customers?
  Yes. The company demonstrates significant client stickiness with solid policy renewal rates.
  
• Does the company have high repeat customer usage?
  Yes. The nature of health insurance as a product is such that it has high repeat customer usage.
  
• Does the company have a credible moat?
  No. The company operates in a highly competitive environment with many larger peers present in the market.
  
• Is the business of the company immune from easy replication by new players?
  Yes. The insurance industry is highly regulated and requires various regulatory permissions to enter into.
  
• Is the company's product able to withstand being easily substituted or outdated?
  Yes. The health insurance industry is highly underpenetrated. With growing customer awareness of needing a failsafe in case of a health crisis, the demand for health insurance will only increase.
  
• Is the level of competition the company faces relatively low?
  No. The company faces fierce competition from many large players in the industry.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters hold over a 25 per cent stake in the company?
  Yes. The promoter group will hold a stake of around 73 per cent in the company after the IPO.
  
• Do the top three managers have more than 15 years of combined leadership at the company?
  No. The sole executive director and managing director, Krishnan Ramachandran, has been associated with the company since 2020 only.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. We have no reason to believe otherwise.
  
• Is the company free of litigation in court or with the regulator that casts doubts on the management's intention?
  Yes. The company has four court litigations against it. But they are not a cause of concern.
  
• Is the company's accounting policy stable?
  Yes. We have no reason to believe otherwise.
  
• Is the company free of promoter pledging of its shares?
  Yes. Promoters have not pledged any of their shares.

Financials

• Did Niva Bupa generate a current and three-year average return on equity of more than 15 per cent?
  No. The company reported an ROE of around 6 per cent for FY24. Its three-year average ROE was nearly -10 per cent between FY22 and FY24.
  
• Did the company increase its premium earned by 10 per cent annually in the last three years?
  Yes. Between FY22 and FY24, the company increased its net premium by nearly 47 per cent annually.
  
• Is Niva Bupa free from reliance on huge working capital for day-to-day affairs?
  Yes. The company does not require huge working capital. As it collects the premiums upfront, it is able to manage its day-to-day expenses easily.
  
• Can the company run its business without relying on external funding in the next three years?
  Yes. The company will utilise the IPO proceeds and won't need to raise additional capital in the near future.
  
• Is the company free from meaningful contingent liabilities?
  Yes. The company is free from any meaningful contingent liabilities.

Valuations

• Is the stock's price-to-earnings less than its peers' median level?
  No. The company is valued at a P/E ratio of 99 times compared to its peers' median level of 38 times.
  
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The company is valued at a P/B ratio of 4.8 times compared to its peers' average level of 5 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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