May 06, 2022

Impressive Q4 earnings, dominant market share makes Star Health a value bet

Emkay Research is bullish on Rakesh Jhunjhunwala-backed Star Health and Allied Insurance shares on the back of impressive March quarter results and sees an upside of up to 30 per cent in the stock price.
With the management commentary suggesting an encouraging claims ratio trend for the first quarter of the financial year 2022-23, Emkay Research said that it was confident of company hitting 95-96 per cent combined ratio in the current fiscal, the brokerage firm said in its note. 
With Covid19-led abnormalities now behind for the business, by leveraging its moat, STAR Health will embark on a long-term profitable growth journey, Emkay Research said reiterating a Buy rating on the stock with a revised target price of Rs 945 per share, which implies nearly 29 per cent upside.
The Brokerage has made some minor changes to FY23-25 estimates factoring in the developments of Q4FY22 and have increased the cost of equity to 12.5 per cent to reflect the recent increase in risk-free rates.
Emkay has a high conviction Buy on Star Health is underpinned by three factors: 
1) The health insurance industry is still in its infancy – we expect a heady growth rate of around 20 per cent in the next decade.
2) Star Health’s dominant market share (>3x nearest competitor) in the sticky retail sector offers network effects – the trio of hospitals, customers, and agents feed off each other in a virtuous cycle. 
3) Expect margin gains with scale. 
Star Health is the second most valued stock in billionaire investor Rakesh Jhunjhunwala’s portfolio, with around Rs 7,278.5 crore as per the stock analysis website The ace investor holds around 100,753,935 equity shares, which aggregate to 17.5 per cent stakes in the company.
The counter on Friday closed flat with a positive bias, up around 0.5 per cent to Rs 734.35 per share on the BSE as compared to an over 1.5 per cent fall in the S&P BSE Sensex.