Despite the ongoing correction, Star Health shares may rise up to 40%; here’s why

Despite the ongoing correction, Star Health shares may rise up to 40%;  here’s why

Shares of private health insurer Star Health Insurance have fallen 23% in the last one year. The stock, which was listed at Rs 848.80 on December 10, 2021, is trading 35.75% lower to the market debut day level. However, two brokerages have overlooked the ongoing correction in the stock and initiated coverage on the stock included in the portfolios of Rekha Jhunjhunwala and her late husband Rakesh Jhunjhunwala.

Anand Rathi has initiated coverage on Star Health and Allied Insurance Company with a target price of Rs 723, implying an upside of 40%.

“Star Health is the largest private health insurance company in India with leadership in the retail health segment. They have the largest and well spread distribution networks in the health insurance industry and integrated ecosystem. The company has a focus on innovative and specialized products,” said Anand Rathi in its maiden report on the stock.

“We remain optimistic about the overall prospects of Star Health and expect overall gross premiums to grow a healthy CAGR over FY 22-24, led by Retail Health. We expect the claims ratios to normalize. This should enable it to return to profitability over FY23 -24E. We remain extremely positive on the business model,” it added.

In the current trading session, the stock fell 2.02 per cent intraday to Rs 539.05 against the previous close of Rs 550.15 on BSE. It has fallen 3.68% this year.

The market cap of Star Health fell to Rs 31,686 crore on BSE. Total 6224 shares changed hands amounting to a turnover of Rs 34.09 lakh on BSE.

The stock forms part of late investor Rakesh Jhunjhunwala’s portfolio. Jhunjhunwala is named as a promoter of Star Health. He (14.25 per cent or 8.28 crore shares) and his wife Rekha Jhunjhunwala (3.07 per cent or 1.78 crore shares) held 17.32 per cent stake in the firm as of the December 2022 quarter, shareholding pattern data on BSE show.

In terms of technicals, the relative strength index (RSI) of the stock stands at 49.4, signaling it’s trading neither in the overbought zone nor in the oversold zone. Star Health stock has a one-year beta of 0.2, indicating very low volatility during the period. Star Health shares are trading higher than the 5 day and 50 day moving averages but lower than 20 day, 100 day and 200 day moving averages

PhillipCapital has also initiated coverage on the insurance stock with a target price of Rs 675 per share.

Star Health is India’s largest standalone health insurer with a market share of 13% as of 9MFY23 (33% in retail health insurance) with built strong virtuous cycle through its market leadership position in agency network, retail health, and by having one of the largest hospitals networks, said Phillip Capital in a note.

“All these factors feed each other, creating very strong entry barriers for incumbents and new players, based on which we expect Star Health to remain a dominant player in the retail health space. As its loss ratio normalizes to pre-covid levels, its combined ratio will improve, driving underwriting performance and profitability. We expect Star Health to deliver a revenue CAGR of 18% over FY22-25 and RoE of 14% in FY25,” the note stated.

“The virtuous cycle created by a strong agency network, market leadership in retail health, and a large hospital network should continue to help Star Health to capture the long-term growth opportunity in India’s health insurance industry,” said PhillipCapital. Key risks as per brokerage, could be higher agency channel dependency, rising competition, higher than expected loss ratio and regulatory changes.

Incorporated in 2005, Star Health offers coverage options for retail health, group health, personal accidents and overseas travel insurance.

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