Buy Star Health; target of Rs 685: Emkay Global Financial

Emkay Global Financial's research report on Star Health

Star Health (Star) reported decent performance for Q4FY23, completing the year post the pandemic with a combined ratio for FY23 at 95.3%, coming near the top end of ~93/-95% combined ratio target. Premium growth for FY23 at 13% was largely in line with our estimates and was driven by ~18% growth in retail and a ~33% decline in group (in line with management’s guidance of exiting the large corporate group health business). PAT for FY23 came in 13.7% lower than our estimate at Rs6.2bn, largely led by lower NEP than our estimates. However, with the company achieving the 95.3% CoR, we believe Star is on the right track to achieve profitable growth, given its expanding hospital network, strong distribution network, and some normalization in medical inflation.

Outlook

Given that Star is within the 35% Expense of Management (EoM) cap, the company is well positioned in the new EoM regulations era. We have tweaked our estimates for FY24-25E and reiterate our BUY rating with a revised Mar-24 TP of Rs685, implying a 32x FY25E P/E and 2.1x FY25E P/GWP.