Emkay initiates coverage on Rakesh Jhunjhunwala-backed Star Health with 'buy' rating; sees 25.2% upside

After a flop show at the stock market on debut, Emkay Global Financial has initiated coverage on Rakesh Jhunjhunwala-backed Star Health and Allied Insurance Company with a buy rating. Emkay, one of the leading players in Institutional Equities and portfolio management services, has given a target of Rs 1135 per share in 12 months. This translates into a 25.2% upside on its current market price of Rs 907 per share as of December 12, 2021.  

"We initiate coverage on STAR HEALTH with a Buy rating and a Mar'23 TP of Rs 1,135 (25% upside). Our TP implies a valuation multiple of 47x FY25E EPS and an FY25 P/GWP of 2.9x," said the research.

The brokerage has underlined three factors for its conviction on this Jhunjhunwala-backed share.

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The research was of the view that the health insurance industry is still in its infancy and it expects heady growth rates of approximately 20% in the next decade.  

Star Health’s dominant market share was another factor that the research highlighted, besides, an expectation of margin gains with scale.  

"We are of the view that investors should not be deterred by high valuations, which are rightfully anchored to STARHEALTH’s nearly unassailable position in a high-growth industry," the research noted. 

Earlier on December 10, Indian billionaire-promoted Star Health made a weak debut on the exchanges as the stock listed with a 6 per cent discount. It was on expected lines, given the muted response to its IPO and overvaluation concerns. The stock was listed at Rs 848 per share on the BSE against its issue price of Rs 900.

The initial public offering of Star Health was subscribed 79.3% on December 2, the last day of applying for the issue.  

Meanwhile, Star Health share was trading with a minor correction of 0.80 per cent at Rs 899.60, down Rs 7.25, around 1.40 pm on the BSE in Monday's intraday trade.