Motilal Oswal has given Buy recommendation for Star Health recommended buy rating on the stock with a target price of Rs 750 in its research with a target price of Rs. 750 in its research report issued on Mar 17, 2022

Motilal Oswal’s research report on Star Health

Star Health, the market leader in the Indian Health Insurance industry, with retail market share of 31%, is poised to grow at a relatively faster pace vis-à-vis the overall Health Insurance industry. -Indian health insurance is grossly underpenetrated – the penetration (premium as % of GDP) and density (premium per person) stand at 0.4% and USD5, respectively. Relatively, China / the US has penetration of 0.7%/4.1% and density of USD66/USD2,679. Only 3.5% of India’s population is covered under the retail health insurance plan, and out-of-pocket expenditure is high at 63% (world average of 18%). These statistics indicate a large opportunity for health insurers going ahead. Standalone health insurance companies (SAHIs) have outperformed in the Retail segment (39% of the overall Health Insurance market), with their market share increasing from 40% to 50% in the past five years. This outperformance has been driven by 1) a single product focus, which has ensured product innovation; 2) a strong agency network; and 3) a strong association with hospitals. Among the SAHIs, Star Health has seen its market share increase to 32% in 10mFY22 (from 20% in FY18). In terms of distribution, it has the highest number of agents at 0.53m, with 786 branches. Also, it has tie-ups with 12,000+ hospitals. The company leads the market in product approvals acquired from the IRDAI. It is also a leader in specialty products, such as Cancer, Cardiac, Senior Citizens, and Diabetes, among others. -With regard to profitability, pre-FY21, the company had been delivering a claims ratio in the range of 60-66% and a combined ratio of 92-94%. The opex ratio saw sharp improvement to 19.6% in FY21 from 27.8% in FY17. Performance has been better than that of peers.

Outlook

Going ahead, we expect Star to report a gross premium CAGR of 25% over FY21-24E, going from loss of INR8.3b in FY21 to PAT of INR10.8b in FY24E. At 32.5x FY24E P/E, we find the valuations reasonable. We value the company at 40x FY24E EPS to arrive at fair value of INR750.

More Info

At 11:06 hrs Star Health & Allied Insurance Company was quoting at Rs 624.50, up Rs 15.25, or 2.50 percent.

It has touched an intraday high of Rs 626.00 and an intraday low of Rs 613.00.

It was trading with volumes of 11,214 shares, compared to its thirty day average of shares, a decrease of percent.

In the previous trading session, the share closed down 1.83 percent or Rs 11.35 at Rs 609.25.

The share touched its 52-week high Rs 940.00 and 52-week low Rs 603.00 on 10 December, 2021 and 16 March, 2022, respectively.

Currently, it is trading 33.56 percent below its 52-week high and 3.57 percent above its 52-week low.

Market capitalisation stands at Rs 35,941.36 crore.

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