Buy This Mid-Cap Insurance Stock For More Than 40% Gains, Stock Near 52 Week Low

Stock Outlook

Today, 05 July 2022, Star Health & Allied Insurance Company Ltd opened at Rs 500 per share on NSE. The Current Market Price (CMP) is Rs 493.65 per share at the time of writing. The 52-week low of the stock was recorded on 1 July 2022 at Rs 469.05 per share, while the 52-week high was recorded on 10th December 2022 at Rs 940 per share. Stock's CMP is trading at Rs 24.6 per share below its 52-week low levels.

As mentioned earlier, the stock got listed on the exchange last year on December 10. Since the stock got listed on an exchange, its share price has seen a continuous fall, as of now, it has fallen nearly 41.07%. In the past 1 month, the stock has fallen 29.75%, and in the past 3 months, its share has witnessed a sharp fall of 32.55%.

Considering its CMP & the target price of Rs 700 per share, the stock has the potential to gain nearly 42%.

Retail health insurance is a high-growth industry and STAR has a pole position in the same

STAR retail health GDPI has grown at 29% CAGR between FY18-22 vs industry retail health GDPI growth of 18%. FY23-TD growth has moderated to 13% on the high base of Apr/May'21. Market share as on FY23-TD stood at 30.6%, higher than 29% in FY22-TD (Apr and May'21).

No player has been able to gain market share in retail health organically except Star and Care

No company has been able to garner a significant amount of market share in the retail health segment except Star Health and Care Insurance (and also HDFC Ergo due to acquisition of Apollo Munich which was SAHI). Star/Care retail health market share has improved from 23%/4% in FY18 to 33%/7% in FY22, respectively.

PSU pie will continue to give market share gain opportunity to well-entrenched players like STAR

PSU market share erosion in retail health segment along with low solvency ratios will provide enough headroom for the growth of strong private players. PSUs' retail health market share declined from 38.3% in FY18 to 25.9% in FY23-TD.

Fears of life insurers selling retail health indemnity leading to business impact of STAR is overdone

Life insurance companies offered indemnity-based health products till 2016. They had an indemnity product (which was long-term) till 2013. Approximately 21,000 policies were sold per annum till 2013 compared to ~8.8mn retail health policies sold by nonlife insurers in FY13. Even now, life insurance companies offer critical illness products. As such, with strong agency (550k agents) and hospital network (12,820 network hospitals) along with product innovations, STAR should be able to sustain any increase in competitive pressure.

Brokerage maintains buy call for a target price of Rs Rs 700 per share

ICICI Securities said, "We value the stock with a revised target price of Rs700 based on 40x (earlier 50x) FY24E EPS of Rs17.5 (earlier 16.7). We factor GDPI CAGR of 16.5% between FY22- 24E, investment leverage of 2.3x in FY24E, combined ratio of 95% and investment yield of 7% for FY24. Our change in multiple reflects the possibility of heightened competition, subsequent covid waves and overall increase in the cost of capital. ail health indemnity is overdone."