Rakesh Jhunjhunwala Portfolio: ICICI Securities bets on this stock; here's why

Brokerage firm ICICI Securities said that it is bullish on Rakesh Jhunjhunwala-backed Star Health and Allied Insurance Company Limited. In its recent report, it has given a 'Buy' rating on the stock with a target price of Rs 806 per share.
 
It noted that the company is the leading health insurance player in India with 14 per cent/32 per cent market share in total/retail health insurance segment as of 10MFY22.
 
"While business sensitivity to loss ratios will be high (as seen in FY21/FY22), the retail focus and growth expectations in new business should help maintain high profit and help STAR to maintain 12/17 per cent RoE over in FY23/24E," it added.
 
"We value the stock at Rs 806 (50x FY24E P/E and 8x FY24E P/B). These valuations are higher than average multiples for listed multi-line peer (Long term average P/E / P/B is 41x/7x) on account of the higher growth expectations in health segment where STAR has a leadership position," said ICICI Securities.
 
The brokerage firm highlighted that being a monoline insurance company, risks include higher sensitivity to loss ratios, which can lead to stress in solvency on incidents such as pandemic. However, the calculation indicates the company will not require fresh capital if it is able to maintain its overall combined ratio at less than 96 per cent.
 
Shares of Star Health listed at a discount of over 6 per cent to the issue price. The firm made its debut at Rs 845 per share (down 6.11 per cent) on the NSE against the IPO issue price of Rs 900.

Further, in its report, ICICI Securities also highlighted, "While FY21/FY22 have been impacted by COVID, we see good prospects for more than 20 per cent premium CAGR in Indian health insurance space till FY30 on the back of structural under-penetration, increasing consumer awareness and rising affordability." It believes that Star is well placed to be one of the biggest beneficiaries of the same
 
Jhunjhunwala and his wife Rekha are the second-largest shareholders in the company with 18.21 percent stake. Safecrop Investments India LLP is the biggest shareholder with 47.77 percent stake in the company.
 
Star Health and Allied Insurance Company is among the largest private health insurers in India. The company focuses on the retail health and group health segments which accounted for 89.3 per cent and 10.7 per cent of the company's total gross gross written premium (GWP)  in fiscal 2021, respectively.
 
At 14:20 hours, the shares were trading 0.21 per cent higher at Rs 636.90 on BSE. Market cap of the company rose to Rs 36,655.01 crore.