Target: ₹860

CMP: ₹710.20

Capitalising on an early-mover advantage and significant regulatory arbitrage, STARHEAL is positioned as the largest standalone health insurer (FY22: 33 per cent market-share), anchored on an extremely strong and highly productive agency-dominated distribution network and retail-dominated business mix (FY22: about 90 per cent of GDPI). Despite potential regulatory convergence, we believe that STARHEAL has headroom to pivot to a high-quality franchise, translating into better quality of earnings. We expect STARHEAL to deliver revenue/APAT CAGRs of 32 per cent/38 per cent over FY20-FY24E and healthy RoEs in the range of 10 per cent/16 per cent in FY23E/24E.

Granularity and personal connect have been the two key pillars for high stickiness and renewal rates (FY22: about 95 per cent). We believe that substantial back-book accretion is the key driver to retaining and growing high vintage, high-productivity agents. However, we also highlight the need for STARHEAL to fix its claims rejection ratio in order to improve its customer experience, a long-term catalyst for stickiness.

Having operated in a tight “loss ratios” band (pre-Covid), STARHEAL’s elevated loss ratios (FY22: 87 per cent) are expected to gradually improve with normalising environment to 65.6-66.5 per cent over FY23E-24E. Non-linearity in staff costs is expected to improve opex ratio by 131 basis points (percentage of NWP); this, coupled with dialling down of agency commissions in line with long-term growth trends, is expected to improve CORs to 94.1 per cent by FY32E.

Key risks: disproportionate dependence on agency channel; continued poor claims experience; slower-than-expected growth impacting loss ratios; and rising competitive intensity on indemnity products.

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