Shares of Rakesh Jhunjhunwala-backed Star Health and Allied Insurance Company closed 5% gains on Thursday after brokerage Motilal Oswal initiated coverage of its insurance shares. This Jhunjhunwala-backed insurance stock has fallen more than 45% from the 52-week high of Rs 940 a share it reached on October 10 last year.
According to the company’s BSE stock patterns, the Big Bull owns a 17.5% promoter’s stake in the company under the name of both his wife and wife Rekha Jhunjhunwala.
As of the quarter ended December 2021, the top investor holds 8,28,82,958 shares of the insurance company, together accounting for 14.4% and 1,78,70,977 representing a 3.11% stake under the name Rekha Jhunjhunwala.
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On Thursday, Star Health shares settled with gains of Rs 28.35 to 637.60 per share on the BSE. Insurance shares traded at a 52-week low of Rs 603 per share on March 16, reaching a year-high on December 10.
What works for Star Health?
Star Health is poised to grow at a relatively faster pace compared to the general health insurance industry as it leads its segment with a 31% retail market share, says Motilal Oswal.
“Indian health insurance is grossly under-penetrated. Only 3.5% of the Indian population is covered by the retail health insurance plan, and out-of-pocket expenses are high at 63% (world average of 18%). These statistics indicate a high probability for health insurers continue,” he said as he initiated the coverage.
In terms of distribution, it has the highest number of agents at 0.53 million, with 786 branches. It also has ties to more than 12,000 hospitals. The company is the market leader in product approvals obtained from IRDAI. It is also a leader in specialty products such as cancer, heart disease, seniors and diabetes, among others.
Motilal Oswal issued a buy recommendation with a target price of Rs 750 per share, which translates into an 18% increase from Thursday’s closing price of the share.
“Motilal Oswal expects Star to report a gross premium CAGR of 25% over FY21–24E. At 32.5xFY24E P/E, we believe the valuations are fair. We value the company at 40x FY24E EPS to arrive at a fair value of INR750 ‘ it added.
Main risks
Higher claim rate due to Covid 19, competition from multi-line general insurers and extending the coverage of government schemes, such as Ayushman Bharat, to ‘outside BPL’ households could slow the sector’s growth.
(Disclaimer: The opinions/suggestions/advice expressed here in this article are those of investment experts only. Zee Business encourages its readers to consult their investment advisors before making any financial decision.)
This post Motilal Oswal launches coverage on Rakesh Jhunjhunwala-backed Star Health with buy recommendation; sees 18% upside
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