Motilal Oswal's research report on Star Health and Allied Insurance Company
In its FY22 Annual Report, Star Health outlined the strong growth opportunities in the Health Insurance space in India. After the lifting of COVID-related restrictions, there is growing acceptance of the need for hospitalization, leading to larger customer walk-ins wanting to avail Health Insurance policy without being prospected. With India ranking high in terms of diabetes, obesity, and cancer, along with increasing share of the older age population, the severity of hospitalized cases will continue to rise. Star Health is focusing on deepening its presence in rural India, with the creation of a dedicated vertical for addressing demand from these geographies. Given its increased impetus towards enhancing the bancassurance channel, it has increased its RM count by 28% in FY22. The agent count for Star Health grew 19% to 550k in FY22, while that of sponsored agents increased by 34% to 79k. Star Health continued to enhance its hospital network, with the addition of 1,949 hospitals to its overall network. The company was able to enter into pre-agreed agreements with 1,497 hospitals. The claims outgo of 87% comprises 21% on account of the COVID-19 pandemic. When deducted, the claims outgo of 66% compares favorably with average pre-pandemic claims outgo of 61%.
As a result, we expect the combined ratio to improve to 93.3% in FY25 from 117.9% in FY22. We expect RoE to improve to ~16% in FY25 from 11.9% in FY23. We maintain our Buy rating with a revised TP of INR830 (40x Sep’24E P/E).
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