Rakesh Jhunjhunwala-promoted Star Health and Allied Insurance Company stock price has crashed more than 28 per cent in over 3 months. The stock has not been able to top Rs 900 level (IPO price) since listing day. However, ICICI direct has initiated coverage on Star Health, recommending to buy the stock at a price target of Rs 800 apiece, a 23 per cent upside potential. “We arrive at our target price by assigning 50 per cent weight to each price to premium (GWP) and price to float to factor in business growth and profitability,” the brokerage firm said in a report. Last week, Motilal Oswal Financial Services had also initiated its coverage on the stock with a buy rating to it. Big bull Rakesh Jhunjhunwala and his wife Rekha Jhunjhunwala are the promoters of Star Health and Allied Insurance Company, collectively owning a 17.51 per cent stake or 10 crore shares in the company.
Star Health stock fell to its all-time low to Rs 603 apiece, last week, down 36 per cent from its record high level of Rs 940, touched on the listing day. On a year-to-date (YTD) basis, the stock has plummeted over 16 per cent.
What should investors do with Star Health and Allied Insurance Company stock?
Star Health is expected to maintain its leadership in the retail health segment with sustainable long term opportunity, research analysts at ICICI Direct Research said. They also added that the premium growth at 23-24 per cent CAGR, and focus on underwriting profit is expected to keep RoE ahead of peers. “Strong underwriting, tie-up with hospitals will restrict claims while focus on opex (through in-house claim settlement and gradual improvement in efficiency) is seen boosting profitability and return ratios ahead,” they said.
Star Health is the largest standalone insurer engaged in the health insurance segment with relatively superior market share, operating performance, the brokerage firm added. It has 768 branches and more than 12,000 network hospitals, with a presence in 25 states and five union territories. The brokerage firm also noted that rising income, product development, medical inflation is expected to pave the way for the next leg of growth. “We expect insurance penetration to double (from 3.8% in FY21) to 17%, 18% CAGR in total health, retail health premium, respectively, in FY21-31E,” it added.
Motilal Oswal Financial Services (Buy rating; target at Rs 750)
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. “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,” Motilal Oswal said.
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