Medi Assist Healthcare Services Limited – IPO Note – Equity Research Desk

Company overview

Medi Assist Healthcare is a third-party administration (TPA) service provider to insurance companies through wholly owned subsidiaries Medi Assist TPA, Medvantage TPA (from February 13, 2023) and Raksha TPA (from August 25, 2023). A TPA is an organization that processes health insurance claims for insurance companies and provides services such as policy administration, customer service and network management, among others. As a third-party administrator, the company act as a facilitator between (a) insurance companies and their policy holders, (b) insurance companies and healthcare providers (such as hospitals), and (c) the Government and beneficiaries of public health schemes. It also facilitates other healthcare and ancillary services such as hospitalization services, call centre services, customer relations and contract management services, billing services and claims processing services. The company has developed a pan-India healthcare provider network which comprises 18,754 hospitals across 1,069 cities and towns and 31 states (including union territories) in India and network across 141 countries globally, as on September 30, 2023.

Objects of the offer

• To carry out the Offer for Sale of up to 28,028,168 Equity Shares by the Selling Shareholders.

• Achieve the benefits of listing Equity Shares on the Stock Exchanges.

Investment Rationale

• Well-established third-party administrator in India – Medi Assist Healthcare’s key subsidiaries Medi Assist TPA, Medvantage TPA and Raksha TPA are well-established TPAs in India. The three subsidiaries contribute the major portion of the company’s consolidated revenue. Medi Assist TPA and Medvantage TPA, contributed to 96.32% of revenue from contracts with customers in the FY23 and Medi Assist TPA, Medvantage TPA and Raksha TPA contributed 92.98% of revenue from contracts with customers in H1FY24. Medi Assist TPA had a market share of 14.83% of the retail health insurance market and 41.71% of the group health insurance market, and a cumulative retail and group segment share of 33.67% serviced by third party administrators, as of FY22.

• Insured Member Experience – The company’s technology platforms offer to individuals, and corporates and their employees’ enrolment and modification of beneficiaries, enrolment and administration of flexi-benefits, pre-authorization to avail policy benefits, customized and security integration with the corporate intranets, scheduling appointments, submission and reimbursement of claims and cashless claim settlement. Cashless claim settlement is a benefit extended exclusively to insured members seeking medical treatment at 166 healthcare facilities which are under an active network contract. This arrangement facilitates direct financial settlement by the insurer with the treating hospital, eliminating the need for immediate out-of-pocket payments by policyholders for the expenses covered under the terms and conditions of their respective policies. Due to the size and scale of operations and contracting capabilities, it is able to negotiate discounted rates with hospitals for the benefit of insurance companies and insured members, thereby managing medical inflation better.

• Technology driven infrastructure – The company’s technology-driven infrastructure and services are custom-built, and assist various stakeholders such as insurance companies, hospitals, insurance brokers and insurance agents in their operations, and are scalable, comprehensive, easy to use and secure. The company has been successful in leveraging its technical capabilities and domain expertise to improve its operational efficiencies. The total number of claims intimated to the company in FY21-23 has grown from 3,134,056 to 6,090,526 at a CAGR of 39.40%, an increase in volume without having to incur a proportionate increase in cost. The company acts as a portal where insurance companies have real time access to claims processed and view documents submitted, and queries raised among others. Insurance companies can study trends, compare historical performance, conduct analysis and make informed decisions to optimize their health benefits portfolio. It has also begun to utilize artificial intelligence and machine learning to augment fraud detection capability, which strengthens the reliability and integrity of claims processing operations.

• Financial performance – During the six months ended September 30, 2023, the company helped settle 3.05 million claims, comprising 1.37 million in-patient claims and 1.68 million domiciliary or out-patient claims. The company reported a revenue of Rs.519 crore in FY23 as against Rs.412 crore in FY22, an increase of 26% YoY. The revenue has grown at a CAGR of 23% between FY2021-23. The EBITDA of the company in FY23 is at Rs. 119 crore and EBITDA margin is at 24%.  The PAT of the company in FY23 is at Rs. 74 crore and PAT margin is at 14%. The CAGR between FY2021-23 of EBITDA is 25% and PAT is 68%. The ROCE of the company stands at 25% in FY23. Total health insurance premium serviced by the company grew at a CAGR of 19% between FY18-22.

Key risks

• OFS risk – The IPO consists of only an Offer for Sale of up to 28,028,168 equity shares by the Selling Shareholders, including the company Promoters. The entire proceeds from the Offer for Sale will be paid to the Selling Shareholders, including Promoters and the company will not receive any such proceeds. The offer comprises the sale of 2,539,092 shares by the company promoter Dr. Vikram Jit Singh Chhatwal, 12,468,592 shares by promoter Medimatter Health Management Private Limited and 6,606,084 by promoter Bessemer Health Capital LLC. Remaining of the shares are sold by Investor and Other Selling Shareholders.

• Regulatory risk – The company and its subsidiaries engaged in the activities as a TPA are subject to regulation by the Insurance Regulatory and Development Authority of India.

• Dependence on subsidiaries –The company is highly depended on the performance of its three key subsidiaries. Any unanticipated event that might adversely affect any of these subsidiaries might impact the income and profits of the company.

Outlook

According to RHP, the company does not have any listed competitor in India and it is not possible to provide an industry comparison in relation to the company. At the higher price band, the listing market cap of Medi Assist Healthcare will be around ~Rs.2878 crore and the company is demanding a P/E multiple of 38.22x based on post issue diluted FY23 EPS of Rs.10.94. The company seems to be overvalued. Based on the above views, we provide a ‘Neutral’ rating for this IPO for a medium to long-term holding.