IPO: Medi Assist Healthcare

Medi Assist Healthcare, a third-party administration (TPA) services provider for insurance and healthcare, launched its IPO (initial public offering) on January 15, 2023. Here's an overview of its business, strengths, weaknesses, and growth prospects.

In a nutshell

• Quality : Its three-year average return on equity (ROE) and return on capital employed (ROCE) are 23.7 and 18.0 per cent, respectively. In FY23, its ROE and ROCE were 27.4 and 20.8 per cent, respectively.
  
• Growth : Its topline grew by 28.2 per cent and 22 per cent in FY23 and FY22, respectively.
  
• Valuation : The stock is valued at a P/E and P/B of 48.9 and 6.9 times, respectively. There are no listed peers currently.
  
• Overview : Increasing insurance penetration in India is expected to drive growth. However, insurers may decide to establish their in-house services in future, posing a significant risk to its operations. Also, the highly regulated nature of the insurance industry is monitorable.

About Medi Assist Healthcare

Incorporated in 2000, Medi Assist Healthcare is a third-party administration services provider to hospitals and insurance companies. Simply, it acts as an intermediary between hospitals, insurers and their customers. It helps process claims on behalf of insurers and provides other services such as policy administration, customer service, etc. Similarly, it provides hospitalisation services, call centre services, billing services, etc., to hospitals.

Strengths of Medi Assist Healthcare

• Market leader in third-party administration services, with a market share of 26.4 per cent in FY23.
  
• Strong pan-India network. It caters to 18,754 hospitals across 1,069 cities.

Weaknesses of Medi Assist Healthcare

• Revenue concentration : Its top five largest customers accounted for 71 per cent of FY23 revenue.
  
• It operates in a highly regulated industry and is considerably dependent on insurance companies. Any changes in the preferences or decisions of insurance providers can significantly impact its topline.

Risk report

Company and business

• Are Medi Assist Healthcare's earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. Its profit before tax was Rs 106 crore in the 12 months ending September 2023.
• Will Medi Assist Healthcare be able to scale up its business?
  Yes. The insurance segment in India remains highly underpenetrated. Increased awareness about insurance policies, rising healthcare costs, and favourable government initiatives should help it scale up.
• Does Medi Assist Healthcare have recognisable brands with client stickiness?
  Yes. It serves 27 out of the 29 general insurance companies in India. It has long-term contracts with them, ranging up to five years. Also, it has maintained a contract retention rate of more than 90 per cent.
• Does the company have a credible moat?
  No. While it is a market leader in third-party administration (TPA) services, it lacks bargaining power due to its dependence on insurance companies for outsourcing.

Management

• Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. Promoter and promoter group combined stake will be 45.8 per cent post IPO.
• Do the top three managers have more than 15 years of combined leadership at Medi Assist Healthcare?
  Yes. Vikram Jit Singh (Chairman and Director) has been with the company since 2007.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information to suggest otherwise.
• Is the company's accounting policy stable?
  Yes. No information to suggest otherwise.
• Is Medi Assist Healthcare free of promoter pledging of its shares?
  Yes. No shares have been pledged.

Financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  Yes. Its three-year average ROE and ROCE are 23.7 and 18 per cent, respectively. In FY23, its ROE and ROCE were 27.4 and 20.8 per cent, respectively.
• Was the company's operating cash flow positive during the last three years?
  Yes. It has reported positive cash flow from operations in each of the last three years. However, it witnessed a negative cash flow from operations of 19 crore in H1 FY24.
• Is the company's net debt-to-equity ratio less than one?
  Yes. It is net cash positive as of September 2023.
• Is Medi Assist Healthcare free from reliance on huge working capital for day-to-day affairs?
  No. Working capital requirements have been steadily increasing in the past three years; average receivables as a percentage of revenue stood at 74 per cent as of September 2023.
• Can the company run its business without relying on external funding in the next three years?
  Yes. It has generated positive cash flow from operations in the past three years. Additionally, its asset-light model, where it leases its office spaces instead of owning them, makes it a less capital-intensive business.
• Is Medi Assist Healthcare free from meaningful contingent liabilities?
  No. Contingent liabilities as a percentage of equity stood at 13.7 per cent (as of FY23).

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock offers a 3.1 per cent operating earnings yield on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  The company is valued at a price-to-earnings ratio of 48.9 times. There are no listed peers currently.
• Is the stock's price-to-book value less than its peers' average level?
  The company is valued at a price-to-book ratio of 6.9 times. There are no listed peers currently.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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