Key triggers that can bring 20% upside to this Jhunjhunwala stock

NEW DELHI: ICICIdirect called Star Health Insurance "the brightest star" in the health insurance sky as it initiated coverage on the stock with a 'buy' and a price target of Rs 800. The target suggests a 23 per cent upside over the prevailing prices.

Motilal Oswal Securities had last week initiated coverage on the stock with a target of Rs 750. The fresh target by ICICIDirect is still below Rs 900, at which its IPO shares were issued in December last year.

Rekha and Rakesh Jhunuhnwala held a 17.51 per cent stake in the standalone health insurer as of December 31.

On Wednesday, the scrip was trading at Rs 651.95, down 0.37 per cent. At this price, the stock is available at a 28 per cent discount to the issue price.

ICICIdirect values Star Health at 2.6 times FY24 gross direct premium income (GDPI) or 49 times FY24 EPS, considering two metrics - price to premium (GWP) and price to float.

"Health is expected to maintain its leadership in the retail health segment with sustainable long term opportunity. Premium growth at 23-24 per cent CAGR and focus on underwriting profit is expected to keep its return on equity (RoE) ahead of peers," it said.

ICICIdirect said a large population base along with massive under penetration provides a long term sustainable growth opportunity.

"Increased awareness, led by Covid, is likely to act as an inflection point. Rising income, product development, medical inflation is expected to pave the way for the next leg of growth. We expect 17 per cent Cagr growth in total health premium in FY21-31 and 18 per cent in retail health premium for the same period," it added.

The domestic brokerage said Star Health is a market leader in retail health insurance, with a market share in retail GDPI at 31.3 per cent. It expects its market share dominance to continue led by a focus on product innovation, competitive pricing and strong distribution push.

"Largest agency channel with 5.3 lakh agents form a pillar to drive 77 per cent of the business. Focus on agency channels coupled with strategic tie-ups with digital ecosystem partners will enable pedalling healthy growth in premium," it said.

ICICIdirect said Star Health has consistently delivered a combined ratio at 93-95 per cent in FY16-20. While Covid led to higher claims resulting in underwriting loss, the brokerage expects the situation to normalise from FY23 onwards.

"Strong underwriting, tie-up with hospitals will restrict claims while focus on opex (through in-house claim settlement and gradual improvement in efficiency) is seen boosting profitability and return ratios ahead," it said.