MEDI ASSIST Rs 450
Domestic health insurance industry has been witnessing high growth and this trend is expected to continue for quite some time because of low penetration of health insurance in India, rising awareness amongst people about its need, higher incomes and rising medical costs.
If an investor wants to participate in the above trend, the first options available are either to invest in general insurance companies like ICICI Lombard or in a standalone health insurance company like Star Health. These are well managed, profitable companies but they also have certain peculiarities. General insurance companies like ICICI Lombard insure a lot of other assets also like vehicles, property, cargo etc and health insurance is only 25-35% of their overall business. Hence the investor is unable to achieve a focused health insurance exposure. Star Health offers this focus, but it is subject to strong competitive pressure from well-funded unlisted players like Acko, Go Digit etc which makes the scenario uncertain.
An interesting alternative for taking a position in the health insurance sector without being exposed to the low focus/competitive risks discussed above is through TPA (Third Party Administrators). TPAs are the interface between the patient, hospital, and the insurance company and each TPA has many insurance companies as its clients. Due to this diversification, a TPA is assured of growth in line with industry growth irrespective of which company gains or loses market share.
Medi Assist is a leading listed TPA with 29% market share of group insurance and 6% market share of retail insurance in India. It works with 27 out of 28 health insurance companies in India. It came out with IPO in Jan 2024 at a price of Rs 418. In the last 4 years from FY 2019 to 2023 for which data is available, its topline has grown at a CAGR of 16% and PBT at 25%.
There is a flip side also to the investment rationale in TPAs. If insurance companies set up their own TPA outfits (like Bajaj Finserve recently did with 100% acquisition of Vidal Healthcare, a leading TPA), it would mean lower growth for listed TPAs. However, Medi Assists’ management states that insurance companies prefer dealing with TPAs due to cost effectiveness and ease of operations. In fact, the share of TPAs in servicing claims has grown every year in the last decade and currently stands at 55-56% and is expected to increase to 61-62% by 2028.
Medi Assist’s 9MFY24 topline grew 27%. Profitability was under pressure with Ebitda up only 10% and PBT down 3% due to one-time expenses. As per Q3FY24 conference call, PBT adjusted for these one-time expenses was up 14%. At FY25 estimated EPS of Rs 10, it is trading at PE of 45 with ROE of 20%, nil debt and growth expected to be in line with industry growth of 20-25%. Investors desirous of taking part in the health insurance growth in India can consider Medi Assist as one of the potential investment candidates.