Star Health Gets 'Buy' Rating As Goldman Sachs Initiates Coverage

Star Health and Allied Insurance Co. got a 'buy' rating as Goldman Sachs initiated coverage on the insurer, citing its industry-leading market share in retail health and current valuations.

"While the stock has underperformed over the last three months, we see multiple catalysts over the next 12 months, viz., pickup in customer renewals for 'family health optima' plan towards the end of the four-month grace period, larger banca tie-ups, and scale-up of rural business," the brokerage said in a July 31 report.

Key takeaways from the report:

• Initiates 'buy' rating with a target price of Rs 770 per share, implying an upside of 21% from the July 31 closing price.

• Star Health is the largest standalone health insurer in India, with a 14% market share in the health segment in FY23.

• This is driven by an extensive agency network and years of domain expertise.

• The company is best positioned to benefit from the structural growth in the health segment, given its competitive moats:

  a) Agency strength: 2.6X second player.

  b) Underwriting prowess: 600 to 900 basis points lower combined ratios versus coverage.

• Expects the company to continue gaining on its industry-leading market share at around 40% levels in the retail health segment, driven by the strengthening of the agency force, an uptick in existing agent productivity, and price hikes.

• Expects Star Health to deliver 21% topline growth over its FY23–26 estimate, marginally above its guidance.

• A combination of price hikes, a focus on the banca channel, and product innovation will enable the company to maintain its industry-best combined ratios (in the 93–95% range) to support profitability.

• The stock currently trades below its historical average price-to-earnings ratio.

• Bull/bear case analysis implies +44%/-20% upsides, suggesting attractive risk-reward.

• Key risks include the potential convergence of regulatory arbitrage, market share decline, and composite licencing.