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* In its FY22 Annual Report, STARHEALTH 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.

* STARHEALTH 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 STARHEALTH grew 19% to 550k in FY22, while that of sponsored agents increased by 34% to 79k.

* STARHEALTH 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%.

* The company launched seven products in FY22: Saral Suraksha Bima, Star Cardiac Care Insurance Policy – Platinum, Star Cancer Care Platinum Insurance Policy, Star Group Critical Illness Multipay Insurance Policy, Star Critical Illness Multipay Insurance Policy, Star Women Care Insurance Policy, and STARHEALTH Premier Insurance Policy.

* The management’s strategy aims at extending technology across businesses, data collection and analysis, talent management, risk understanding, market understanding, systems security, and operational processes. In FY22, it invested extensively in digital platforms, data platform, automation, and omnichannel accessibility.

* Valuation and view:

We cut our earnings for FY23/FY24/FY25 by 2%/3%/4% to factor in weaker than expected performance in terms of premium growth. We expect STARHEALTH to deliver 18% gross premium CAGR over FY22-25, led by strong growth in the Retail Health Insurance. With increasing losses in the Corporate Health book, the management has taken a conscious decision to exit certain large corporate businesses, which will lead to a decline in the segment in FY23. Claim ratios are expected to improve with the impact of the pandemic receding. Scale benefits will result in expense ratio declining by 210bp over FY22-25E. 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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