Gross Written Premium (GWP) of Niva Bupa grew at a strong CAGR of 41.27% in the last three years ended FY2024, which is almost double of the industry’s average of 21.4%. Retail health GWP also grew at a strong CAGR of 33.41%. The company has continued to gain market share in the Indian SAHI market to 17.29% in April-August 2024 from 16.24% in FY2024, 15.58% in FY2023 and 13.87% in FY2022 based on retail health GDPI.

During over 16 years of operations, the company has built a track record of product innovation catering to a range of customer groups. Bupa Singapore Holdings Pte and Bupa Investments Overseas, members of the Bupa Group, are promoters of the company. Established in 1947, the Bupa Group is an international healthcare organization serving over 50 million customers worldwide end December 2023.

The company is strategically focused on the retail health market and it had 14.99 million active lives insured end June 2024. GWP from retail health products was 67.65% of overall GWP for Q1FY2025.

The company sells its products directly to customers through direct sales channels, which accounted for 13.61% of business by GWP for Q1FY2025, which is the highest among SAHIs highlighting the strength of in-house sales capabilities. The company also relies on intermediated distribution channels comprising individual agents, corporate agents (banks and others), brokers, insurance marketing firms, POSPs and web aggregators to distribute products.

The company has a diversified channel mix with corporate agents (banks and others) channels contributing 27.25%, individual agents 32.07% and broker 27.04% of business by GDPI for FY2024, as compared to over 50% contribution of the individual agents channel to overall GDPI of SAHIs in FY2024. The company has generated GWP in every state and union territory in India, with no single state or union territory accounting for more than 20% of GWP.

The company has established a branch network of 210 physical branches across 22 states and 4 union territories in India end June 2024. Individual agency network have grown at a CAGR of 18.62% to 152,436 agents end June 2024 from 103,815 agents end March 2022. The company had the second highest growth in the number of individual agents compared to other SAHI peers.

The company distributes products through 77 corporate agents end June 2024, including banks and other corporate agents. Major banking institutions such as HDFC Bank and Axis Bank play a pivotal role as corporate agents. The company also partners with 14 web aggregators end June 2024 to distribute products.

The company adopts a “digital-first” approach in business and implements technology integration across every step of the customer journey, including customer on-boarding, underwriting, claims and renewals. The company relies on digital stack, which is a combination of in-house tools and also tools co-created with digital partners which contributes towards improved conversion, claims management, claims adjudication and real-time fraud detection using machine learning algorithms.

The company has delivered strong customer service metrics on claims with a 91.93% claims settlement ratio for FY2024. The company has the highest percentage of pre-authorized claims processed within one hour among all SAHIs.

The company has focused on growing Network Hospitals to 10,426 end June 2024 from 8,562 end March 2022, which is one of the largest networks of hospitals providing cashless treatment. The combination of health insurance products, access to health ecosystem and extensive customer service, coupled with multi-channel distribution capabilities, enables to drive customer retention and attract new customers for business.

The company has also achieved a strong increase in Assets Under Management to Rs 5674.44 crore end June 2024 from Rs 2401.32 crore end March 2022. The yield on total investment increased to 7.13% for FY2024 from 6.60% for FY2022 and further increased to 7.58% for Q1FY2025.

The Offer and the Objects

The initial public offer (IPO) consists of fresh issue of Rs 800 crore through issuance of 11.43 crore equity shares at the lower band of Rs 70 per share (face value Rs 10 per share) and 10.81 crore equity shares at the upper band of Rs 74 per share.

The issue also consists of an offer for sale of Rs 1400 crore from promoters Bupa Singapore Holdings Pte (Rs 350 crore) and Fettle Tone LLP (Rs 1050 crore).

The promoter shareholding will decline to 73.4% post- IPO from 89.1% pre-IPO.

The issue is to be made through the book-building process. It will open on 07 November 2024 and close on 11 November 2024.

The company proposes to utilize the net proceeds from the fresh issue towards augmentation of its capital base to maintain and strengthen its solvency levels by investing in instruments and in the manner prescribed under the IRDAI Regulations. The issue will also bring the benefits of listing the equity shares on the stock exchanges, including enhancing brand image among existing and potential customers and creation of a public market for the equity shares in India.

Strengths

Niva Bupa is a granular retail health insurer with a focus on delivering robust GWP growth, capital efficiency and profitability.

Higher lifetime value (LTV) and the higher margin products had a high share of 73.66% of new retail health indemnity policies for Q1FY2025. As a result, the average ticket size of policies sold has increased from Rs 22186 in FY2022 to Rs 30419 in Q1FY2025.

Underwriting and analytics capabilities help to remain prudent on risk selection, price products in a risk-based manner, drive upsell, cross-sell and customer retention, while seeking to ensure claims are in control.

Diverse distribution channels, including direct sales through website and other digital-related distributors, have contributed to growth in GWP and improved operating leverage and helped lower expenses.

The company has demonstrated one of the highest improvements in Expense Ratio for the health segment from FY2022 to FY2024, as compared to private health insurance and public insurer peers.

The company has built a range of health insurance product offerings that seek to cater to all stages of the customer lifecycle.

The company has demonstrated a track record of product innovation, launching products with “industry-first” features.

The company has designed automated and digital self-serve capabilities aimed at enabling customers to benefit from a seamless, self-serve experience with minimal manual intervention.

The company has also sought to automate the underwriting decision workflow with an in-house developed auto-underwriting system.

The company was the first insurer in the industry to launch a national campaign on 30 minutes cashless claim processing. The company is focused on enhancing customer experience and promoting customer well-being.

Through association with the Bupa Group, the company has access to its international healthcare experience. Bupa has provided guidance in business processes, through its experience in seeking to institute best international practices.

Claims management capabilities are equipped with a paperless digital claims submission system, end-to-end auto adjudication of claims for cashless claims, real-time fraud detection mechanisms using machine learning algorithms and a claims billing analytics tool that flags outliers and anomalies based on the treatment, provider category and location.

The company has demonstrated strong customer service metrics on claims, with a Claims Settlement Ratio of 91.93% for FY2024 and 90.53% for FY2023.

The company uses machine learning-based algorithms and logistics regression models to identify fraudulent claims.

The company also has an outlier detection tool powered by hybrid machine learning-based models which identify data points that deviate significantly, leveraging a combination of machine learning techniques.

The company has multi-channel diversified pan-India distribution, with technology-led empowerment of distribution partners.

The company is the largest selling non-life insurer on India’s largest online insurance broker/web aggregator, Policybazaar.com, based on insurance commission paid by insurers to the insurance broker/web aggregator.

Technology and analytics platforms are present across every aspect of business, and form the bedrock of day-to-day business.

Weaknesses

About 98% of the GDPI is contributed by the health insurance line of business, any adverse changes to the demand for health insurance products and the retail health insurance sector may affect the business and profitability.

The majority of GWP generated from corporate agents is derived from a limited number of banks and other corporate agents, including HDFC Bank, Axis Bank, Federal Bank and Bajaj Finance. The company has not entered into any exclusivity arrangements with distributors.

The corporate agent distributors may also consolidate, downsize their physical branch networks or change their business lines, which could limit ability to sell products through corporate agents.

GWP contribution from group health policies has increased sharply to 30% in Q1FY2025 from 21% in FY2022. Any adverse changes to the demand for group health policies could have a material adverse effect on business.

The company is reliant on information technology systems and any cyber-attacks or other security incidents could have a material adverse effect on business. The business activities would be materially disrupted in the event of a failure of information technology systems.

The profitability depends on ability to predict medical expenses claims and accurately price products, which depends on factors beyond own control such as epidemics, pandemics, changes in health care regulations, increases in hospital and pharmaceutical costs etc.

Pandemics and other catastrophic events materially increase liabilities for claims by policyholders.

The expansion of coverage and increased prevalence of government-funded health insurance schemes may have adverse effects on demand for private health insurance.

The company operates in a highly competitive, evolving and rapidly changing health insurance industry.

The company is dependent on the strength of the brand and reputation of Bupa and other entities of the Bupa Group. The Bupa TradeMark Agreement is for an indefinite period of time but shall come to an end in a variety of circumstances including if Promoter together with its nominees and/or affiliates ceases to hold any Equity Shares of the company.

The health insurance industry in India is undergoing rapid and significant technological change. The success and growth of business depends upon ability to adapt to technological changes.

Data collection and storage are increasingly subject to legislation and regulations in various jurisdictions and governments are increasingly acting to protect the privacy and security of personal information.

As part of intermediated distribution strategy, the company seeks to have a diversified sourcing mix of distribution channels and no single distributor contributed more than 15% to overall GWP.

Valuation

Niva Bupa Health Insurance Company is the third largest and the second fastest growing SAHI company. Niva Bupa had a market share in the Indian SAHI market of 17.29% in April-August 2024. The company is also the fourth largest player within the overall retail health insurance with a market share of 9.10% in FY2024. Niva Bupa has consistently narrowed the gap in scale from the larger competitors, while widening the gap in scale from its small competitors in India from FY2022 to FY2024 in terms of Retail health GDPI. Niva Bupa saw the largest growth in the number of lives insured in Retail health, rising from 3.09 million to 4.06 million from FY22 to FY23, marking a growth of 31.56%.

Overall average ticket size per policy for Niva Bupa is the 3rd highest among SAHI peers. Niva Bupa’s overall direct sales channel is the highest among SAHIs in terms of total health GDPI contribution. In addition, Niva Bupa has the highest share of directly sourced GDPI among all SAHIs. At the overall company level across all segments, Niva Bupa demonstrates strong combined ratios of 97.13% and 98.76% in FY23 and FY24 respectively, ranked third behind Care Health and Star Health in both the years.

EPS on post-issue equity works out to Rs 0.7 for TTM ended June 2024. At the price band of Rs 70 to Rs 74, the P/E works out to 94.6 to 100 times of EPS for TTM ended June 2024.

Post-issue, the book value (BV) will be Rs 15.6 at the upper price band. The scrip is being offered at price to BV multiple of 4.7 times at the upper price band.

Niva Bupa had conducted right issue of 1.82 crore equity share to promoters and others in September 2023 at Rs 67.15 and further conducted preferential allotment of 11.91 crore equity shares to Paragon Partners Growth Fund II, SBI Life Insurance Company, V-Sciences Investments Pte and India Business Excellence Fund IV in December 2023,

Among peer health insurers, ICICI Lombard General Insurance Company is trading at P/ BV multiple of 7.5 times, Star Health Insurance Company at 4.3 times and Religare Enterprises promoter company of Care Health Insurance, is trading at 3.6 times

In terms of PE, ICICI Lombard General Insurance Company is trading at 43.8 times of EPS for TTM ended June 2024, Star Health Insurance Company at 32.8 times. and Religare Enterprises at 44.8 times.

On profitability front, ROE for Niva Bupa Health Insurance Company is low at 3.6% for TTM ended June 2024 being in the early growth stage. RoE of ICICI Lombard General Insurance Company was at 16.7%, Star Health Insurance Company was at 13.1% and Religare Enterprises at 8.0%.