Buy This Private Insurance Stock, Retail Health Premium Guidance At 20-25%: Motilal Oswal

Top brokerage firm Motilal Oswal suggests investors to buy the stocks of Star Health. The management maintained its Retail Health premium guidance at 20-25%, with 8-9% contributed by price hikes.

Stock To Buy: Target Price & Financial Result

The Current Market Price (CMP) of Star Health is Rs. 742. Motilal Oswal has estimated a Target Price for the stock at Rs. 850. This stock has the potential to give a 15% return, in the upcoming 1 year. This is a large-cap stock with a market capitalization of around Rs. 40,773 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 742
Target Price	Rs. 850
Potential 1 year return	15.00%
52 week high share price	Rs. 940.00
52 week low share price	Rs. 469.05

The commission ratio stood at 13.7%, while the expense ratio stood at 18.2%. Overall, the combined ratio, at 98.2%. The combined ratio remained flat sequentially, but improved by 2,300bp. Overall, the combined ratio stood at 98.2% v/s 121%/98.4% in 1Q/4QFY22. Net underwriting profit stood at Rs. 1.6b in 1QFY23. The beat was led by a 25% outperformance on NEP, which was driven by a release in an unexpired risk reserve.

Motilal Oswal: Why Should You Buy This Stock?

Incurred claims came in 29% higher than our expectation at Rs. 17.8b. It declined by 13% YoY but remained flat sequentially. Resultantly, incurred claims ratio stood at 66%. PAT, at Rs. 2.1b, was higher than our forecasts of Rs. 1.4b. The solvency ratio stood at 1.9 as compared to 1.7 in 4QFY22.

Giving a buy rating to this stock, the brokerage firm stated, "We remain optimistic about the overall prospects for Star Health, backed by strong growth in Retail Health, given its under-penetration, healthy earnings growth, led by normalization in the claims ratio, limited cyclicality risk (Commercial lines and Motor Insurance have high cyclicality), and healthy RoE profile (15-17% over the medium term). In 1QFY23, although claims were higher than our expectation on back of Covid-related medical inflation, its Retail Health business continued to grow better than the industry. While we broadly retain our FY24 estimate, we have cut our FY23 EPS by 9% to factor in higher ESOP costs. We also introduce our FY25 estimate, wherein we expect GWP/ underwriting profit/PAT growth of 19%/46%/30%. We roll forward our TP to 40x Sep'24E from 40x FY24E to arrive at a revised fair value of Rs. 850."

Company portfolio

Commencing operations in 2006 as India's first Standalone Health Insurance provider, Star Health and Allied Insurance Co Ltd is providing sterling services in Health, Personal Accident and Overseas Travel Insurance etc. Their efforts have always been on service excellence and product innovation. Currently, Star Health has above 12800 employees and above 640 branch offices all over India. The company expects overall premium growth to stay muted, due to a decline in the Group business. For FY23, it guided at a claim/combined ratio of 65-66%/93-95%. ESOP expense stood at Rs. 550m in 1QFY23. For 2Q/3QFY23, the management guided at an ESOP expense of Rs. 550m/Rs. 360m.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.