In the midst of India’s initial public offering frenzy, there’s one (more) that demands a closer look—insurance-tech company Medi Assist Healthcare.

Medi Assist, which works like a mediator between health insurance companies and those who hold these policies, is the first pure-play third-party administrator in the sector to go public. Its IPO opened for subscription on 15 January. Founded in 2000, Medi Assist connects hospitals, insurers and the individuals they cover.

To understand more clearly what Medi Assist actually does, let’s consider a scenario wherein someone has a medical emergency. This person will obviously try to settle the bill using their health insurance plan. Now, insurers do not always handle the claims themselves. They use third-party administrators (TPAs) to do this work. This is where Medi Assist comes in. These TPAs are often the first point of contact for patients or caretakers, who submit their claims to them. Medi Assist helps process these, bridging the gap between the big insurance guns and policyholders and handling intermediate communication.

It also provides call centre, hospitalization assistance and billing services to hospitals. Beyond that, it serves as a mediator between the government and the beneficiaries of public health schemes.

Now, coming to its listing.

What’s on offer: The IPO, valued at Rs 1,171.58 crore, is entirely an offer for sale of 2.8 crore shares, with a price band of Rs 397-418 per share. Since it is an OFS, the proceeds—barring the IPO expenses—will go to selling shareholders instead of the company.

Medi Assist’s IPO saw significant interest—from both retail and non-institutional investors (NII)—and was subscribed 16.25 times on the third day (17 January). The company’s shares are set to be listed on the BSE and the National Stock Exchange on Monday. Several brokerages are also optimistic about the listing, considering its dominance in the fast-growing segment.

“There are no comparable peers having business model similar to MAHSL…. At a higher price band, MAHSL is demanding a P/E (profit to earnings) multiple of 34.8x (to its Trailing Twelve Month EPS of Rs. 12), which is at discount to the peer average of 42.6x. Thus the issue is attractively priced,” Choice Broking said.

But the timing for its listing is interesting. Markets have shown a surge of investor interest in primary market offerings, which means the interest in Medi Assist could be for potential listing gains, according to Moneycontrol. According to reports, the grey market premium is expected to be between Rs 25-27, which means a 6-7% listing gain from the public issue.

But could there be more at play here?

Apart from listing gains, the company’s IPO presents an opportunity for investors to participate in the growing health insurance and healthtech industry. Medi Assist functions as a leading TPA for insurance companies, which means a lion’s share of its revenue is linked to the premium under management of such health insurance companies.

Naturally, the question arises: why not invest directly in the stocks of listed insurance companies, such as Star Health and ICICI Lombard General Insurance, instead of taking a roundabout route? The answer lies in the distinct risk profile.

The optimism surrounding it: Investing in insurer stocks exposes investors to a myriad of risks, such as company-specific issues and underwriting risks. In contrast, opting for a TPA like Medi Assist provides a relatively stable avenue for participating in the overall growth of the health insurance industry as it manages claims processing for numerous insurers—a diversified investment option.

Medi Assist holds a 33.67% market share in the retail and group TPA segment. Through its subsidiaries—Medi Assist TPA, Medvantage TPA and Raksha TPA—the firm has established an extensive network of 18,754 hospitals spread across 1,069 cities in 31 states. Additionally, this company works with 35 insurance companies both within India and on the global stage.

Its client portfolio reads like a who’s who of the corporate world, with 76% of Nifty50 and 35% of BSE companies. It is also worth noting that the company’s margins have been consistently outshining industry standards. Notably, the company also towers over its competitors, with the largest revenue and profit figures in the TPA industry. For the six months ended September 2023, the company’s total income rose 26% year-on-year to Rs 312 crore, while net profit fell 39% to Rs 22.5 crore. Medi Assist has also sharpened its focus on streamlining its business structure.

Additionally, the company’s high promoter shareholding despite multiple private equity investments stands as a positive indicator.

That said, the company is not without its own set of risks.

Red flags: First, the company’s top five clients contributed to 78.23%, 78.95% and 77.97% of total revenue for the financial years FY21, FY22 and FY23, respectively. The potential loss of one or more such clients poses a palpable threat to its future prospects.

Second, the company operates in a highly regulated industry, heavily reliant on insurance providers. Any shifts in the regulatory standpoint of these providers could impact its financial standing.

Third, it relies heavily on its subsidiaries for a significant portion of its revenue—Medi Assist TPA and Medvantage TPA contributed to 96.32% of its revenue in FY23. These subsidiaries have received show-cause notices from the Insurance Regulatory and Development Authority of India in the past. The company declared non-compliance with IRDAI inspections or adverse observations as a tangible threat to its bottomline.

Last and most significantly, there seems to exist a relationship between Medi Assist and healthcare provider Medibuddy, which needs more examination.

MediBuddy was the healthcare services arm of Medi Assist. But in June 2020, MediBuddy merged with online doctor consultation platform DocsApp.

A strange link? Now, TPAs like Medi Assist engage in service level agreements or SLAs with insurance companies. These agreements specify payment terms for claims processing. But Medi Assist, sensing inadequacy in SLA payments, tries to go for “alternative sources of income which is in contravention to the SLA and the IRDAI guidelines,” a person aware of the matter told The Morning Context on condition of anonymity.

These alternative sources of income involve tie-ups through the MediBuddy app, where users may be directed to favoured hospitals for treatment, this person says. The Morning Context could not independently verify whether such an arrangement exists. (It's worth noting that MediBuddy and Medi Assist are still registered in the same building complex.)

Also read: What’s making MediBuddy customers unhappy?