Buy Star Health and Allied Insurance Company, target price Rs 800: ICICI Direct

ICICI Direct has buy call on Star Health and Allied Insurance Company Ltd. with a target price of Rs 800.

Star Health and Allied Insurance Company Ltd, incorporated in the year 2005, is a Small Cap company (having a market cap of Rs 37,581.60 crore) operating in Financial Services sector.

Investment Rationale
The brokerage expects insurance penetration to double (from 3.8% in FY21) to 17%, 18% CAGR in total health, retail health premium, respectively, in FY21-31E.


Star Health has consistently delivered a combined ratio at 93-95% in FY16-20. Covid led to higher claims resulting in underwriting loss, which, we believe, will normalise from FY23E onwards. Strong underwriting, tie-up with hospitals will restrict claims while focusing on opex (through in-house claim settlement and gradual improvement in efficiency) is seen boosting profitability and return ratios ahead.

Star Health is expected to maintain its leadership in the retail health segment with sustainable long term opportunities. Premium growth at 23- 24% CAGR & focus on underwriting profit is expected to keep RoE ahead of peers.

We initiate coverage on the stock with a BUY rating, the brokerage said.

"We value Star Health at 2.6x FY24E GDPI (49x FY24E EPS) at Rs 800, considering two metrics - price to premium (GWP) and price to float."

Financials
For the quarter ended 31-12-2021, the company has reported a Standalone Total Income of Rs 2711.01 Crore, up .07 % from last quarter Total Income of Rs 2709.24 Crore and up 77.07 % from last year same quarter Total Income of Rs 1531.07 Crore. Company has reported net profit after tax of Rs -578.37 Crore in latest quarter.

Promoter/FII Holdings
Promoters held 58.9 per cent stake in the company as of 31-Dec-2021, while FIIs owned 35.03 per cent, DIIs 2.32 per cent.