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Brightest STAR in health insurance sky…

About the stock: Star Health is the largest standalone insurer engaged in health insurance segment with relatively superior market share, operating performance.

Star Health is a market leader in the retail health insurance segment with 32%+ market share, as of December 2021 and 29.8% market share in the number of persons covered (as of FY21)

Star Health has 768 branches and 12000+ network hospitals, with a presence in 25 states and five union territories

Key triggers for future price performance:

Large population base along with massive under penetration provides a long term sustainable growth opportunity. Increased awareness, led by Covid, is likely to act as inflection point. Rising income, product development, medical inflation is expected to pave the way for next leg of growth. We expect insurance penetration to double (from 3.8% in FY21) to 17%, 18% CAGR in total health, retail health premium, respectively, in FY21-31E

Star Health is a market leader in retail health insurance, with market share in retail GDPI at 31.3%. Going ahead, market share dominance is expected to continue led by focus on products innovation, competitive pricing and strong distribution push. Further, higher proportion of retail business (~88- 89%), competitive pricing and strong distribution push to drive growth

Largest agency channel with ~5.3 lakh agents form a pillar to drive ~77% of business. Focus on agency channel coupled with strategic tie-ups with digital ecosystem partners to enable pedalling healthy growth in premium

Star Health has consistently delivered combined ratio at 93-95% in FY16-20. Covid led to higher claims resulting in under writing loss, which, we believe, will normalise from FY23E onwards. Strong underwriting, tie-up with hospital will restrict claims while focus on opex (through in-house claim settlement and gradual improvement in efficiency) is seen boosting profitability and return ratios ahead

What should investors do? Star Health is expected to maintain its leadership in retail health segment with sustainable long term opportunity. Premium growth at 23- 24% CAGR & focus on underwriting profit is expected to keep RoE ahead of peers.

We initiate coverage on the stock with a BUY rating

Target Price and Valuation: We value Star Health at ~2.6x FY24E GDPI (49x FY24E EPS) at | 800, considering two metrics - price to premium (GWP) and price to float.

Alternate Stock Idea: Apart from Star Health, we like HDFC Life Insurance

It is among the most dominant players in the Indian life insurance industry

BUY with target price of | 800

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