Shares of Star Health Insurance opened in the green in early trade on Thursday, trading at ₹725.40, up 1.35% at 10:30 a.m. on the BSE. After hitting an all-time low, Star Health Insurance has risen gradually from ₹469 to the current level of ₹715.80, representing an increase of about 52.62%. Yet, with Tuesday's closing price of ₹715, the stock is still lower by 25% from its issue price of ₹900/share.
Star Health Insurance was listed on the bourses on December 10, 2021. The company reduced its IPO size to ₹6,400 crore from its earlier size of ₹7,249 crore after the IPO failed to get a subscription fully due to its expensive valuations. The stock made a weak debut, listing at ₹848.80, a 6% discount to the issue price of ₹900, but later recovered and closed the day at ₹906.85. Thereafter, the stock failed to maintain its bullish trend and fell nearly 34% in three months, continuing in the same trend until June of this year, when it reached an all-time low of ₹469.
Global and domestic brokerage firms have given mixed ratings on the stock. Last month, global brokerage firm Citi gave a "sell" rating with a target price of ₹670, citing that the company's valuation does not fully price in the headwinds. While domestic brokerage firm Motilal Oswal is bullish on Star Health, and it recommended a 'BUY' rating on the stock with a target price of ₹830. However, the brokerage reduced its earnings estimates for FY23/FY24/FY25 by 2%/3%/4% to factor in weaker-than-expected performance in terms of premium growth.
Analysts at Motilal Oswal see significant growth opportunities in the Indian health insurance market. After the lifting of COVID-related restrictions, there is growing acceptance of the need for hospitalization, leading to larger customer walk-ins wanting to avail of health insurance policies without being prospected, said analysts.
The company is focusing on deepening its presence in rural India with the creation of a dedicated vertical for addressing the demand from these geographies. Given its increased impetus towards enhancing the bancassurance channel, it has increased its RM count by 28% in FY22. The agent count for Star health grew by 19% to 550k in FY22, while that of sponsored agents increased by 34% to 79k, analysts at motilal oswal highlighted.
Analysts are optimistic about the company's continued expansion of its hospital network, which now includes 1,949 hospitals. The company was able to enter into pre-agreed-upon contracts with 1,497 hospitals.
The claims outgo of 87% comprises 21% on account of the COVID-19 pandemic. When deducted, the claims outgo of 66% compares favourably with the average pre-pandemic claims outgo of 61%.
"We expect Star Health to deliver an 18% gross premium CAGR over FY22–25, led by strong growth in retail health insurance." "With increasing losses in the Corporate Health book, the management has taken a conscious decision to exit certain large corporate businesses, which will lead to a decline in the segment in FY23," said analysts.
Analysts expects claim ratios to improve with the impact of the pandemic receding. Scale benefits will result in the expense ratio declining by 210bp over FY22–25E. As a result, it expects the combined ratio to improve to 93.3% in FY25 from 117.9% in FY22.
Star Health Insurance is present in 26 states and four Union Territories. Its distribution network is supported by 807 pan-India branches. Nearly 39%/23%/30%/8% of the company’s revenue was derived from South/West/North/East India by the close of FY22.
The company has created a dedicated vertical to address the demand from rural India and widen its geographic footprint. The number of sales managers for rural areas grew to 516 from 511. In FY22, individual agents accounted for over 79% of the GWP.
The count of individual agents grew 18% to 549k in FY22, while that of sponsored agents touched 79k in FY22, up from 59k in FY21. Its agency distribution channel comprises corporate agents and others that accounted for ₹2.2 billion and ₹210 million of GWP, according to Motilal Oswal
After Titan, Star Health is the second-largest stock in Jhunjhunwala's (who passed away in August) portfolio in terms of value. He and his wife Rekha Jhunjhunwala collectively owned 17.9% of the insurance company at the end of June, according to Trendlyne's Shareholding data.
An average of 16 analysts polled by MintGenie have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.