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Elara Securities
Star Health (Accumulate)
Target: ₹863
CMP: ₹779.75
Star Health & Allied Insurance, the leader in retail health, enjoyed a 31.8 per cent share FY22 TD (October 2021) – up 1,704 bps versus FY15 level. Retail health formed about 89 per cent of its FY21 GWP, given strong distribution led by agency/competitive pricing.
Star offers many specialised products to population segments, wherein competition is limited. About 55 per cent (and growing) of Star’s FY21 claims were from in-network hospitals – This has grown 1,000 bps versus FY19 level, and may help restrict claim ratios. Individual agents formed about 79 per cent of sourcing mix in FY21 and are a key moat.
Star’s dominant agency channel-led market leadership, along with increasing market penetration should prop its FY21-24 GWP CAGR to 26.3 per cent. The company’s H1FY22 claims ratio of 88 per cent is at the higher end of the historical average given the Covid impact. We expect its claims ratio to normalise by FY23. Operating leverage will further bring down combined ratios to 93.3 per cent by FY24, driving up FY24 APAT to ₹1,190 crore and RoE to 17.7 per cent.
We initiate coverage on Star with an Accumulate rating and a March 2023 TP of ₹863. A likely third wave of Covid (thus, spiking hospitalisations) or any change in the regulatory environment are key risks to our view.
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