Buy This Mid-Cap Insurance Stock For More Than 40% Gains, Stock Near 52 Week Low

ICICI Securities published an equity research report on 3 July 2022 on Star Health & Allied Insurance Company Ltd (Star Health), a mid-cap insurance company. The brokerage recommended investors buy the stocks of the company for a target price of Rs 700 per share. Star Health retail health GDPI has grown at 29% CAGR between FY18-22 vs industry retail health GDPI growth of 18%. The company got listed on stock exchange on last year, in December.

Stock Outlook

Today, 05 July 2022, Star Health & Allied Insurance Company Ltd opened at Rs 500 per share on NSE. The Current Market Price (CMP) is Rs 493.65 per share at the time of writing. The 52-week low of the stock was recorded on 1 July 2022 at Rs 469.05 per share, while the 52-week high was recorded on 10th December 2022 at Rs 940 per share. Stock's CMP is trading at Rs 24.6 per share below its 52-week low levels.

As mentioned earlier, the stock got listed on the exchange last year on December 10. Since the stock got listed on an exchange, its share price has seen a continuous fall, as of now, it has fallen nearly 41.07%. In the past 1 month, the stock has fallen 29.75%, and in the past 3 months, its share has witnessed a sharp fall of 32.55%.

Considering its CMP & the target price of Rs 700 per share, the stock has the potential to gain nearly 42%.

Retail health insurance is a high-growth industry and STAR has a pole position in the same

STAR retail health GDPI has grown at 29% CAGR between FY18-22 vs industry retail health GDPI growth of 18%. FY23-TD growth has moderated to 13% on the high base of Apr/May'21. Market share as on FY23-TD stood at 30.6%, higher than 29% in FY22-TD (Apr and May'21).

No player has been able to gain market share in retail health organically except Star and Care

No company has been able to garner a significant amount of market share in the retail health segment except Star Health and Care Insurance (and also HDFC Ergo due to acquisition of Apollo Munich which was SAHI). Star/Care retail health market share has improved from 23%/4% in FY18 to 33%/7% in FY22, respectively.

PSU pie will continue to give market share gain opportunity to well-entrenched players like STAR

PSU market share erosion in retail health segment along with low solvency ratios will provide enough headroom for the growth of strong private players. PSUs' retail health market share declined from 38.3% in FY18 to 25.9% in FY23-TD.

Fears of life insurers selling retail health indemnity leading to business impact of STAR is overdone

Life insurance companies offered indemnity-based health products till 2016. They had an indemnity product (which was long-term) till 2013. Approximately 21,000 policies were sold per annum till 2013 compared to ~8.8mn retail health policies sold by nonlife insurers in FY13. Even now, life insurance companies offer critical illness products. As such, with strong agency (550k agents) and hospital network (12,820 network hospitals) along with product innovations, STAR should be able to sustain any increase in competitive pressure.

Brokerage maintains buy call for a target price of Rs Rs 700 per share

ICICI Securities said, "We value the stock with a revised target price of Rs700 based on 40x (earlier 50x) FY24E EPS of Rs17.5 (earlier 16.7). We factor GDPI CAGR of 16.5% between FY22- 24E, investment leverage of 2.3x in FY24E, combined ratio of 95% and investment yield of 7% for FY24. Our change in multiple reflects the possibility of heightened competition, subsequent covid waves and overall increase in the cost of capital. ail health indemnity is overdone."

 

Star Health & Allied Insurance Company Ltd (Star Health)

Star Health & Allied Insurance Company Ltd started operations in 2006 as India's first Standalone Health Insurance provider. The company is providing sterling services in Health, Personal Accident and Overseas Travel Insurance etc. Our efforts have always been on service excellence and product innovation with a focus on delivering the best to our customers.

Star Health has excellent products to cater everybody, be it individuals, families or corporates. The company offers its services directly as well as through various channels like agents, brokers, online etc., Star Health is also prominently into Bancassurance having long-standing relationship with various Banks.

Star Health has underwritten a gross written premium of Rs.6865 Crore during the FY 2019-20 and has built up a promising path with an appreciable net worth of Rs.1889 Crore, as on 31st March 2020. Currently, Star Health has 12800+ employees and 640+ branch offices all over India.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.