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HDFC Securities Institutional Equities
Capitalising on an early-mover advantage and significant regulatory arbitrage, Star Health and Allied Insurance Company Ltd. is positioned as the largest standalone health insurer (FY22:33% market-share), anchored on an extremely strong and highly productive agency dominated distribution network and retail-dominated business mix (FY22: ~90% of gross direct premium income).
Despite potential regulatory convergence, we believe that Star Health has meaningful headroom to pivot to a high-quality franchise, translating into better quality of earnings.
Having aced the agency channel, we argue that the company now needs to build a credible banca strategy in order to sustain its lead in the long term.
We expect Star Health to deliver revenue/adjusted profit after tax compound annual growth rates of 32%/38% over FY20-FY24E and healthy return on equities in the range of 10%/16% in FY23E/24E.
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