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Vidal acquisition: Implications for TPAs

1 Feb 2024 , 10:54 AM

VHC has two subsidiaries – Vidal Health Insurance TPA (VHITPA) which is the third largest TPA in India and VH Medcare which offers insur-tech solutions and KPO services in the Middle-East. VHC generated consolidated revenues of ₹2,270 Million in FY23, growing at a CAGR of 41% over FY21-23, which analysts at IIFL Securities believe is largely driven by acquisition of Vipul MedCorp Insurance TPA by VHITPA. The purchase consideration implies an EV/Sales of 1.4x on FY23 revenues.

The acquisition now enables BFS-Health to offer OPD, wellness, as well as hospitalization benefits to customers. Analysts at IIFL Securities believe this is not the first time that a TPA would be owned by a group company also owning a general insurer (Fairfax-Digit Paramount). Hence, risk of Vidal losing business due to conflict of interest should be low. On the contrary, an improved offering can help Vidal take market share, thereby balancing the potential risks from the acquisition, in IIFL’s view.

About VHC

VHC is among India’s top healthcare services management company. Its wholly owned subsidiary, VHITPA, is the third largest Health Insurance TPA in India. VHITPA serviced premium of over ₹54,000 Million, and covered more than 140 million lives during FY23. In 2021, VHITPA acquired Vipul MedCorp Insurance TPA. The combined entity reported total income of ₹2,135 Million during FY23, with EBITDA and PAT margins at 12.7%/3.6%. During FY23, retail health contributed to 18% of total premiums under management for VHITPA, whereas group health and government health contributed 51% and 31% of total premium under management respectively. VHC’s international business provides insur-tech solutions and Knowledge Process Outsourcing (KPO) services to global insurance and health administrators.

About BFS-Health

BFS-Health makes healthcare and healthcare financing accessible to more than 13 Millon registered users and ~290k MAUs (as of Q3FY24). With an app-first approach, it has an extensive provider network, providing digital cashless healthcare, comprising 100k+ doctors, 5.5k+ lab touch points and 2.1k+ hospitals. The company is a wave 1 partner with Ayushman Bharat Digital Mission and a key player in facilitating healthcare transactions on the Unified Health Interface (UHI) network. BFS-Health reported revenue of ₹1,638 Million and operating loss of ₹376 Million in Q3.

Rationale for the acquisition

The acquisition now enables BFSHealth to offer OPD, wellness, as well as hospitalization benefits to customers. It also helps them play a pivotal role in various healthcare initiatives of the government and IRDAI. With respect to any potential conflict of interest with BAGIC, management stated that BFS-Health had been already servicing other insurers and there will be no impact on VHITPA’s business. The focus would remain on providing quality service to the end customer, which is what the insurers as well as corporates look forward to. The acquisition is expected to close in Q4FY24, subject to regulatory approvals as applicable.

Implications for the TPA industry

Prima facie it may look like VHITPA may lose market share due to conflict of interest with other insurers given their relationship with BAGIC, now a sister concern. However, this is not the first case of a group owning an insurer and a TPA (Fairfax-Digit-Paramount). Even FHPL is owned by the Apollo Group which owns the hospital chain too. Hence, while the other large TPAs may potentially make a case to grab market share from VHITPA, especially in the large corporate health segment, the acquisition of VHC by BFS-Health may also improve their offering by opening up OPD, Wellness, IPD and Integrated care offering to retail and corporate consumers and providing a superior digital consumer experience platform to VHC customers. Hence, while analysts at IIFL Securities do not see this acquisition as a game-changer in the industry, the consolidation in the TPA sector may continue as seen in the seven major M&A transactions that have happened in the past four years itself.

Related Tags

  • Bajaj Finserv
  • Bajaj Finserv Health
  • Vidal
  • Vidal Healthcare Services
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