Motilal Oswal initiates coverage on Rakesh Jhunjhunwala-backed Star Health with buy rating; sees 18% upside

Shares of Rakesh Jhunjhunwala-backed Star Health and Allied Insurance Company ended Thursday with 5% gains after brokerage house Motilal Oswal initiated coverage on the insurance stock. This Jhunjhunwala-backed insurance stock has tanked more than 45% from its 52-week high value of Rs 940 per share that it touched on October 10 last year.  

As per BSE shareholding patterns of the company, the Big Bull holds 17.5% promoter's stake in the company under both his and his wife Rekha Jhunjhunwala's name.  

As per the quarter ended December 2021, the ace investor has 8,28,82,958 shares of the insurance company aggregating to 14.4% under his name and 1,78,70,977amounting to 3.11% stake under the name of Rekha Jhunjhunwala . 

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On Thursday, Star Health shares settled with a gain of Rs 28.35 to 637.60 a share on the BSE.  The insuance stock had traded on 52-week low value of Rs 603 per share on March 16 and touched its year-high on December 10.  

What's working for Star Health?  

Star Health is poised to grow at a relatively faster pace vis-à-vis the overall Health Insurance industry as it is market leader in its segment with retail market share of 31%, says Motilal Oswal.  
"Indian health insurance is grossly underpenetrated. Only 3.5% of India’s population is covered under the retail health insurance plan, and out-of-pocket expenditure is high at 63% (world average of 18%). These statistics indicate a large opportunity for health insurers going ahead," it said while initiating coverage.  

In terms of distribution, it has the highest number of agents at 0.53m, with 786 branches. Also, it has tie-ups with 12,000+ hospitals. The company leads the market in product approvals acquired from IRDAI. It is also a leader in specialty products, such as Cancer, Cardiac, Senior Citizens, and Diabetes, among others.  

Motilal Oswal assigned buy rating with a target price of Rs 750 per share, which translates into 18% upside on the Thursday's closing price of the stock.  

"Going ahead, Motilal Oswal expects Star to report a gross premium CAGR of 25% over FY21–24E. At 32.5xFY24E P/E, we find the valuations reasonable. We value the company at 40x FY24E EPS to arrive at fair value of INR750," it added.  

Key risks  
Higher claim ratio due to Covid 19, competition from multi-line general insurers and extension of coverage of government schemes, such as Ayushman Bharat, to ‘beyond BPL’ families could slow the industry growth rate.  

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)