Rakesh Jhunjhunwala-promoted Star Health and Allied Insurance Company has not had a good journey on the stock exchanges so far since listing. The stock has plummeted 30% since its debut and has not touched the IPO price since listing day. However, analysts at Motilal Oswal have initiated the coverage of Star Health, expecting a 20% upside from today’s levels. Big bull Rakesh Jhunjhunwala is the promoter of Star Health and Allied Insurance Company, owning a 17.5% stake in the recently listed company. On Thursday the stock was trading at Rs 626 per share.
Target price may push stock 20% higher
Star Health has been termed as a premium franchise by analysts at Motilal Oswal. “Star Health, the market leader in the Indian Health Insurance industry, with a retail market share of 31%, is poised to grow at a relatively faster pace vis-à-vis the overall Health Insurance industry,” the brokerage firm said in its initiation note. Going ahead, Star Health is expected to report a gross premium CAGR of 25% over FY21– 24E, going from a loss of Rs 8.3 billion in FY21 to a Net profit of Rs 10.8 billion in FY24E. “We value the company at 40x FY24E EPS to arrive at a fair value of Rs 750,” analysts said. This translated to an upside of 20%.
Massive opportunity ahead
Crisil estimates that the health insurance industry is poised to see a CAGR of 18%/23%/15%/11% in the total/Retail/group/government segment over FY21–25. Analysts at Motilal Oswal said that the stark under penetration of the market would be the primary growth driver as only 3.5% of the population is covered under a retail health insurance plan.
To capitalize on this growth, Star Health is seen to be perfectly placed, being the largest retail health market player with 32% market share and the second-largest player in overall health with 14% market share. Star Health has one of the highest number of retail health products empanelled with the IRDAI, giving it an edge over peers. Analysts at Motilal Oswal also highlighted that the company has people with vast experience in the industry at the helm of affairs.
Star Health’s profitability is expected to improve going ahead. The previous fiscal year has been termed as an exceptional year for Star Health, wherein several one-offs dented performance. These included; the discontinuation of the Reinsurance Voluntary Quota Sharing Treaty (VQST), which led to an impact of Rs 9 billion on NEP; the shift to the 1/365 calculation of unexpired risk reserve v/s the 50% method earlier, and lastly high COVID claims. Normalization of the claims ratio from FY23 and sustained improvement in the expense ratio is expected to improve financials.