Star Health and Allied Insurance (STAHEA) Stock Report - August 26, 2024 PDF

Shubh Nivesh Star Health and Allied Insurance (STAHEA) CMP: ₹ 602 Target: ₹ 730 (21%) Target Period: 12 months BUY August 26, 2024 Favourable external out...

Shubh Nivesh Star Health and Allied Insurance (STAHEA) CMP: ₹ 602 Target: ₹ 730 (21%) Target Period: 12 months BUY August 26, 2024 Favourable external outcomes remains near term catalyst…. About the stock: Star Health is the largest standalone health insurer in the country with a robust in-house claim management system and strong agency network Shubh Nivesh Strong geographical presence with 718 thousand agents, 887 branches, Particulars and 20,000-plus healthcare footprint this includes 14,300 network hospitals Investment Rationale Beneficiary of external support amid focus on improving insurance penetration: India has lower insurance penetration (at 4% of GDP in FY23) compared to global average of 6.8%, with penetration in general insurance remaining far behind at 1% vs global average of 4%. Thus, increasing insurance penetration remains one of the core focus areas for government Shareholding pattern as well as regulator. Reduction in GST on insurance products (currently at 18%) and approval of composite license scheme (parliament approval awaited) are some of the major developments which remains watchful. Any favourable outcome, amid providing push to insurance penetration, remains beneficial for Star Health insurance. Reduction in GST rates is expected to increase attractiveness and affordability of insurance products, thereby aiding business growth. Evaluation on expansion into protection products, Price Chart ICICI Securities – Retail Equity Research on approval of composite license scheme, is seen to complement existing health insurance business. Outlook remains optimistic amid levers for growth: Star Health reported steady market share with 17-18% growth in premium. Management aspires to grow faster than industry targeting to double GWP to ₹30,000 crore by FY28E, implying growth of ~19% CAGR. Levers for sustained growth are 1) Enhancing existing distribution strength of agency with target to reach 10 lakh in 2-3 years, 2) Diversifying channel mix through focus on banca and digital distribution, 3) 10-15% increase in pricing for few products (~30% of portfolio) and 4) increased focus on group business in SME & MSME segment. Key risks Focus on efficiency to aid profitability: Management continues to prioritize (i) Increase in claims amid risk with robust under-writing guidelines to ensure quality and sustainability aggressive customer selection of earnings. Selective in inward portability to ensure control on claims, could impact combined ratio technology upgradation, focus on network hospitals and re-calibration of (ii) Competition could impact business across segments & geographies is seen to aid combined ratio and business growth and profitability operational efficiency. Thus, management targets earnings at ~₹2500 crore in FY28E. Maintaining leverage at 2.3-2.4x, investment income is seen Research Analyst to further support overall earnings. Vishal Narnolia [email protected] Rating and Target Price Krishna Vyas Existing moats in terms of focussed approach, distribution strength and [email protected] network tie-ups coupled with technology adoption remains core and is seen to aid business growth. Any favourable regulation could act as catalyst for Gaurav Singh sustained growth ahead. Valuing the stock at ~2.1x FY26E float (~35x [email protected] FY26E EPS), we assign target price at ₹ 730. Recommend Buy Key Financial Summary 3 year CAGR 2 year CAGR FY21 FY22 FY23 FY24 FY25E FY26E (FY21-FY24) (FY24-FY26E) Gross written premium (GWP) 9388.5 11463.5 12952.5 15254.5 17.6 18139.1 21404.2 18.5 Net Incurred Claims 4369.5 8540.0 7320.9 8600.0 25.3 9935.0 11791.3 17.1 Underwriting Profit/Loss (1331.8) (2061.6) 204.7 90.3 171.8 322.0 Profit after Tax (825.6) (1040.6) 618.6 845.0 1056.7 1219.5 NWP/Net Worth (x) 1.7 1.7 1.9 2.1 2.2 2.2 Price/Float (x) 0.5 3.4 2.6 1.9 2.0 1.8 P/GWP (x) 3.8 3.0 2.7 2.2 1.9 1.6 P/E (x) (41.8) (28.7) 47.9 42.9 34.1 29.6 Source: Company, ICICI Direct Research  Result Update | Star Health and Allied Insurance ICICI Direct Research RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: