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Target: ₹700
CMP: ₹558.05
We initiate coverage on Star Health and Allied Insurance (STAR) with a Buy rating and a 12-month target price of ₹700. STAR is India’s largest retail health insurer with a 32 per cent market share in retail health in 9MFY24.
We expect STAR to grow its GDPI/EPS at 18 per cent/24 per cent CAGR over FY24-26, driven by rising health insurance penetration, unparalleled agency distribution, competitive product portfolio and industry leading underwriting performance. We expect retail health industry to compound at 18-20 per cent CAGR over the next five years, driven by growth in lives covered, sum assured and pricing, which in turn would be led by rising healthcare costs, lifestyle diseases, urbanisation, improved affordability and government initiatives towards health coverage for all by 2047.
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STAR’s efficient cost structure may drive combined ratios to stabilise in 95-97 per cent range and also potentially benefit them under the new EoM regulations.
Our 12-mon TP is based on 30X 2-year forward EPS with 24 per cent CAGR. With valuations de-rated to 24x on FY26 P/E, we believe recent earnings underperformance is priced in and the stock offers an attractive entry point to own a long term compounding story.
Key risks: Composite license, higher competition, regulatory changes.
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