Star Health - Building A ‘Healthier’ Future: Motilal Oswal

Motilal Oswal Report

Star Health and Allied Insurance Company Ltd. is expected to clock 20% retail health premium compound annual growth rate over FY23-25 led by:

1. increasing sum assured per policy,

2. price hike in its flagship product, and

3. deeper penetration that is driving growth in the number of policies.

Management is intensely focusing on growing the business through the banca channel, with the help of the benefit-based products that have much higher profitability than retail health products. The share of banca stood at 5% in FY23 and is expected to double by FY25.

The share of specialised products too has continued to rise and was at 15.5% in FY23 versus 11.2% in FY21. The contribution of network hospitals to cashless claims has also been rising (67% in FY23 versus 55% in FY21).

We expect the trajectory to sustain given the increasing number of specialized products as well as rising associations with hospitals.

Star Health has maintained its guidance of reaching a combined ratio of 93- 95%, with a bias towards the lower end. Further, with solvency at 218%, we do not envisage any equity dilution in the near term.

We expect a 19% net earned premium CAGR over FY23-25 and project the combined ratio to improve to 92.5% in FY25 from 95.0% in FY23. These should result in a profit after tax CAGR of 47% over FY23-25 and return on equity improving to 16% in FY25 from 11% in FY23.

We reiterate our 'Buy' rating with a one-year target price of Rs 730 (premised on 32 times FY25E earnings per share).

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