Buy Star Health; target of Rs 525: Emkay Global Financial

Emkay Global Financial's research report on Star Health

Star Health reported weak performance for Q3FY25, with GWP growth at 5.3% (at a 1.8% miss) impacted by implementation of the 1/n regulation and Combined Ratio at 103.3% vs our estimate of 100.5% driven by higher Claims and Expense Ratio (affected by 1/n premium accounting of long-term policies). The double whammy of increased claims frequency and severity continues to hurt profitability, driving claims ratio at 71.4% vs our estimate of 70.5%, whereas implementation of the 1/n regulation impacted Expense Ratio, which was 31.9% vs Emkay’s at 30%. To mitigate the impact of the elevated claims, the management plans taking a price hike in the 8-9% range across ~65% of the Retail Health portfolio. Against this backdrop,

Outlook

We cut our GWP estimates by 1-4% (largely to reflect impact of the 1/n regulation) and increase Combined Ratio estimates by 1-3ppts, resulting in a 17-23% cut in PAT over FY25-27E. We remain watchful of the claims ratio, given the price hike across retail health products and the growth in fresh policies. We retain BUY on Star Health, while we revise down Dec-25E TP (~by 13%) to Rs525, implying 28x Dec-26 P/E.