Star Health and Allied Insurance Company, is a leading health insurance service player in India. The insurer has announced its financial performance for the quarter and year ending March 31, 2022 (Q4FY22), under which it posted strong growth in premiums. Experts are now optimistic about this insurer going forward due to its strong market presence. Big bull of Dalal Street, Rakesh Jhunjhunwala will become one of the biggest beneficiaries of Star Health’s growth levers.
In Q4FY22the company garnered a gross premium of ₹3,689.15 crores up from ₹2,704.54 crores in Q3FY22 and ₹3,261.82 crores in Q4FY21. Net premium jumped to ₹3,473.77 crores against ₹2,556.82 crores in Q3FY22 and ₹2,620.44 crores in Q4FY22. The company’s premium earned was robust at ₹2,621.17 crore in Q4FY22 against ₹663.82 crores in Q4FY21.
Ansuman Deb and Ravin Kurwa Research Analysts at ICICI Direct in their research note said, “Star Health is the leading health insurance player in India with 15%/33% market share in total/retail health insurance as of FY22 based on GDPI data provided by General Insurance council A strong network of 0.55mn agents, 12,820 hospitals, and 807 branches in FY22 makes STAR the dominant franchise in Indian health insurance with significant entry barriers.”
This is further complemented by healthy financials (18% PAT CAGR over FY16-FY20 and average RoE of 15.5% over FY18-FY20) and strong management, the duo added in their note.
As per ICICI Direct analysts, while FY21/FY22 were impacted by covid, we see good prospects for >20% premium CAGR in Indian health insurance in the medium term on the back of – 1) structural under penetration, 2) increasing consumer awareness, and 3) rising affordability.
They said, “We see STAR well placed to be one of the biggest beneficiaries of the same.”
In the ICICI Direct analysts note, it has been highlighted that, while business sensitivity to loss ratios will be high (as seen in FY21/FY22), STAR’s retail focus and growth expectations in new businesses (~25% of the book) should help maintain high profit and help the company continue with 10%/13% RoEs in FY23/FY24E.
Star Health’s Q4 loss ratio at 68% is seen as a positive surprise by these analysts.
The analysts said, “This has a big positive impact on the earnings of STAR Health. Adjusted for covid and non-business ESOP cost, FY22 PAT would have been Rs5.8bn compared to the reported Rs10.4bn of loss. This would translate to a loss ratio of 65.8% (vs reported of 87%) and expense ratio of 30.8% for FY22. As such, while the reported combined ratio is 118% for FY22, the adjusted combined ratio is 96.6%. covid levels due to the impact of higher ticket size of non-covid cases, which too is due to the pandemic.”
Notably, the company’s management indicated a loss ratio of close to 64% in April 2022 and provisional solvency at 177% with visibility of improving it to >190% in the near term (with profit accretion and move to premium-based accounting). Analysts note said, “This puts the company in significantly better traction.”
According to the ICICI Direct, growth levers for Star Health include an increase in sum assured for existing policies, specialized products, increase in the number of agents, bancassurance, and growth in SME and non-employer-employee group segments. They said, “More than 15% premium growth and less than 95% combined ratio can set up a healthy business value over time; STAR is expected to outperform these contours. Maintain BUY.”
“We value the stock at a revised target price of Rs837 (earlier: Rs806) based on 50x (unchanged) FY24E EPS of Rs16.74 (earlier: Rs16.1). These valuations are higher than average multiples for listed multi-line peers on account of the higher growth expectations in health segment where STAR has a leadership position,” ICICI Direct analysts note said.
Rakesh Jhunjhunwala and his wife Rekha Jhunjhunwala both are promoters of Star Health under the Hindu undivided Family category. As of March 31, 2022, Rakesh’s holding in Star Health stands at 8,28,82,958 equity shares or 14.40%, while Rekha’s shareholding is 1,78,70,977 equity shares or 3.11%. Together, the couple holds 17.51% of the company.
Jhunjhunwala’s second-largest holding is in Star Health in terms of value after Titan Company. Rakesh manages both his and his wife’s portfolio.
On Thursday, Star Health settled at ₹731.30 a piece up by ₹12.95 or 1.80%.