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Leadership in retail health continues, Outlook steady

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 ~31.6% market share, as of June 2022

* Star Health has 807 branches and 13000+ network hospitals, with a presence in 25 states and five union territories

Q1FY23 Results: Lower claims aids profitability

* GWP up 13% YoY to |2463 crore, NWP up 32.6% YoY and NEP up 20% YoY

* Incurred claims decline 12.8% YoY to Rs.1781 crore, Claims ratio down from 91.0% to 66.3% as impact of Covid recedes

* Underwriting profit at |156.8 crore versus a loss of |416 crore YoY

* Combined ratio (as reported) at 98.2% versus 121.1% YoY

* Net profit stood at |213.2 crore versus a loss of |209.8 crore YoY

What should investors do? Star Health is expected to maintain its leadership in retail health segment with sustainable long term growth opportunity. Steady claims ratio and 20-25% growth in premium to improve combined ratio and support RoE.

* We maintain a BUY rating on the stock

Target Price and Valuation: We value Star Health at ~3.1x FY24E GDPI (59x FY24E EPS) to arrive at revised TP of |860 from |825 earlier.

* Under penetration & lower density provides long term growth opportunity

* Improving footprints in rural India & launch of specialised products to help maintain above industry growth and thus maintain market leadership

* Prospect of increase in number of banc-assurance partners along with strengthening of own agency channel to propel business momentum

* Life insurance selling health indemnity to increase competition, though fear seems overdone at this time

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 |635

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