Medi Assist Healthcare Services Ltd (Subscribe)

Highlights

Medi Assist Healthcare Services Limited (MAHSL) incorporated in 2002, engaged in the business of providing third-party administration services to insurance companies through their wholly owned Subsidiaries, Medi Assist TPA, Medvantage TPA (from February 13, 2023) and Raksha TPA (from August 25, 2023).

As a third-party administrator (TPA), the company act as a facilitator between (i) insurance companies and their policyholders, (ii) insurance companies and healthcare providers (such as hospitals), and (iii) the Government and beneficiaries of public health schemes.

Apart from the above the company 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 through the Company and its other Subsidiaries, IHMS, Mayfair India, Mayfair UK, Mayfair Group Holding, Mayfair Philippines and Mayfair Singapore.

As of FY22, Medi Assist TPA had a market share of 14.83 pct of the retail health insurance market 41.71 pct of the group health insurance market, and a cumulative retail and group segment share of 33.67 pct serviced by third-party administrators.

MAHSL has serviced over 9,500 group accounts across sectors to help administer the insurance requirements of their employees. As of March 31, 2023, Medi Assist TPA and Medvantage TPA managed around Rs. 128.18 bn of group health insurance premiums, representing 27.61 pct of India’s overall group health insurance market. The company’s market share in the overall group health insurance market serviced by third-party administrators was nearly 5x of its nearest competitor in the FY22

Out of the total proceeds of Rs. 11,715 mn, after deducting issue-related expenses the entire remaining amount would go towards existing selling shareholders of the company.

Key Highlights

• The health insurance sector in India is about to undergo a transformation. The health insurance premium is expected to grow at a CAGR of ~23 pct over FY23E-FY28E where premiums serviced by TPAs are expected to reach Rs. 1509 bn in FY28E from Rs. 399 bn in FY22, showing a CAGR of ~24 pct over the period. TPAs in India are evolving to provide more benefits administration services targeted at patients and hospitals, which is boosting the industry’s productivity and expansion.
• MAHSL technology-driven infrastructure and services are custom-built, and assist various stakeholders This enables them to offer a comprehensive healthcare solution to them customers, encompassing an extensive in-patient and out-patient network, on-demand health services, robust management of fraud, waste, and abuse, as well as effective medical inflation control.
• The company’s growth has typically been driven by multiple factors, including organic growth from existing clients and new account additions. In addition, they have pursued inorganic growth strategies to consolidate their market share in India and serve the overseas requirements of their clients.
• The company is continuing to explore opportunities for growth in order to consolidate their leadership position and further expand their market share through strategic M&A activity. In the last eight years, the company has acquired Dedicated Healthcare service TPA (India) pvt ltd. (2016), Medicare Insurance TPA Services (I) pvt ltd. (2018), Mayfair (2022), Medvantage (2023), Raksha (2023).
• As of 30 September 2023, the company has 2 existing contractual agreements with validity of 1-2 years. 24 existing contractual agreements which has validity of 2-3 years and 9 open ended existing contractual agreements. The company has 9500+ group accounts where they have ~94% retention ratio of it.
• The company has diversified revenue mix. Majority of the company’s revenue come from the Group segment which contributes 74.41 pct sales, followed by retail segment which contributes 11.29 pct. Government sponsored scheme and and others contribute 10.62 pct and 3.67 pct of sales.             
• Sales of the company has grown by 25.08 pct CAGR during the period FY21-23 while adjusted EBITDA and profit grew 25.65 pct CAGR and 40.77 pct CAGR over the same period respectively. During FY23, company reported sales of Rs. 5,049 mn which increased by 28 pct YoY while adjusted EBITDA rise by 30 pct YoY to Rs. 1,193 mn as adjusted EBITDA margin improved from 23.42 pct in FY22 to 23.64 pct in FY23. The profit of the company stood at Rs. 753 mn in FY23 which has grown 18 pct YoY. During H1FY24 the Sales/adjusted EBITDA/profit came at Rs. 3019 mn/Rs. 623 mn/Rs. 242 mn respectively.

Key Risk

• A decrease in insurance companies outsourcing claims processing and other related activities to third party administrators could impact company’s business.
• The company’s financial performance and stability is influenced by its contractual arrangements with insurance companies.
• Increase in in-house TPA by insurance companies and slowdown of hiring by insurer can impact business of the company.

Financials

Valuation

The company is the leader in the insurance TPA sector with a niche focus and offers advanced technology-powered services.  The down trend for H1-FY24 is attributed to accounting adjustments for recent acquisitions that dented its margins. Management is confident of financial stabilization within two to three quarters after accounting for settlements. At the offer price bands, the issue is quoting at PE of 59.3x based on annualized FY24E earnings and 38x based on FY23 earnings. The issue appears heavily priced as it is a unique play and has a first mover advantage. One can Subscribe from a longer term perspective.

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.