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Motilal Oswal Bets On This Largecap Insurance Stock To Buy, Strong Network Expansion Planned
Leading brokerage firm Motilal Oswal is suggesting buying the stock of Star Health and Allied Insurance Company. Star Health is focusing on deepening its presence in rural India, with the creation of a dedicated vertical for addressing a demand from these geographies.
Stock To Buy: Target Price
The Current Market Price (CMP) of Star Health and Allied Insurance Company is Rs. 720. Motilal Oswal has estimated a Target Price for the stock at Rs. 830. This stock has the potential to give a 15% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 41,021 crore.
| Stock Outlook | |
|---|---|
| Current Market Price (CMP) | Rs. 720 |
| Target Price | Rs. 830 |
| Potential 1 year return | 15.00% |
| 52 week high share price | Rs. 940 |
| 52 week low share price | Rs. 469.05 |
New product launches
The company launched seven products in FY22: Saral Suraksha Bima, Star Cardiac Care Insurance Policy - Platinum, Star Cancer Care Platinum Insurance Policy, Star Group Critical Illness Multipay Insurance Policy, Star Critical Illness Multipay Insurance Policy, Star Women Care Insurance Policy, and Star Health Premier Insurance Policy.
Network expansion
Given its increased impetus towards enhancing the bancassurance channel, it has increased its RM count by 28% in FY22. The agent count for Star Health grew 19% to 550k in FY22, while that of sponsored agents increased by 34% to 79k. Star Health continued to enhance its hospital network, with the addition of 1,949 hospitals to its overall network. The company was able to enter into pre-agreed agreements with 1,497 hospitals.
Stock Valuation: Motilal Oswal
Commenting on the stock's valuation, Motilal Oswal said, "We cut our earnings for FY23/FY24/FY25 by 2%/3%/4% to factor in weaker than expected performance in terms of premium growth. As a result, we expect the combined ratio to improve to 93.3% in FY25 from 117.9% in FY22. We expect RoE to improve to ~16% in FY25 from 11.9% in FY23. We maintain our Buy rating with a revised target price of Rs. 830 (40x Sep'24E P/E)."
Strong growth in the Retail Health Insurance
"We expect Star Health to deliver 18% gross premium CAGR over FY22-25, led by strong growth in the Retail Health Insurance. With increasing losses in the Corporate Health book, the management has taken a conscious decision to exit certain large corporate businesses, which will lead to a decline in the segment in FY23. Claim ratios are expected to improve with the impact of the pandemic receding. Scale benefits will result in expense ratio declining by 210bp over FY22-25E," stated the brokerage firm.
Management outlined strong growth opportunities
In its FY22 Annual Report, the company outlined the strong growth opportunities in the Health Insurance space in India. After the lifting of COVID-related restrictions, there is growing acceptance of the need for hospitalization, leading to larger customer walk-ins wanting to avail of Health Insurance policies without being prospected. With India ranking high in terms of diabetes, obesity, and cancer, along with an increasing share of the older age population, the severity of hospitalized cases will continue to rise.
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.
