Star Health: First major IPO after Paytm's debut to test India's markets

Shares of Star Health and Allied Insurance Co. will list in Mumbai Friday, the first test since Paytm’s debut last month to gauge investor enthusiasm for richly valued stocks that offer poor prospects for near-term profitability.

The firm’s initial public offering fell short of target as investors questioned whether the top price of 900 rupees ($12) was justified after Star Health swung to a loss in the year ended March 2021. The pandemic has boosted insurance claims and Amarjeet Maurya, an analyst at Angel One Ltd., said omicron may extend the company’s losses into the year through March 2023. 

“There is going to be a 60-70 rupee discount to the IPO price as things stand today,” Sudip Bandyopadhyay, a strategist at Inditrade Capital Ltd. had said on Thursday. “It’s a combination of many things, from business model, profitability to pricing.”

Investors are turning increasingly skeptical about IPOs as a record year for Indian listings draws to a close. Backed by billionaire Rakesh Jhunjhunwala and his wife Rekha, Star Health raised $848 million rather than the $975 million it sought, inviting scrutiny to its trading debut. Investors are also wary as shares of One 97 Communications Ltd., operator of the digital payments service Paytm, are down about 25% since its Nov. 18 debut versus a 2.1% drop for the benchmark index. 

On Tuesday, pharmacy chain Medplus Health Services Ltd. slashed its IPO size to $186 million from $219 million planned, ahead of the start of its subscription next week. Indian IPOs that have raised at least $500 million this year have risen an average 17% on their first day of trade, data compiled by Bloomberg show. Of the 10, half notched a first-day gain, including food delivery startup Zomato Ltd. and beauty retailer FSN E-Commerce Ventures Ltd.

Kotak Mahindra Capital Co., Axis Capital Ltd., BofA Securities India Ltd., Citigroup Global Markets India Pvt. and ICICI Securities Ltd. are among managers to Star Health’s IPO.