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Ready to be the next-gen health insurance company

* In its FY23 annual report, STARHEAL outlined strong growth opportunities for health insurance in India. Since the Covid pandemic, there has been strong awareness in people about medical expenses, which has resulted in a rise in walk-in business from people looking for health insurance.

* With India ranking high in diabetes, obesity and cancer cases, in addition to an increasing share of older age population, the severity of hospitalization cases will continue to rise.

* STARHEAL is focusing on deepening its presence in rural India with the creation of a dedicated vertical for addressing demand from these geographies. It is also working on enhancing its bancassurance channel.

* While individual agents (82% share) would continue to be the bedrock for STARHEAL’s growth, distribution channels, such as banca (5%) and digital (9%), will grow at a faster pace, with their cumulative share likely to rise in the next few years. This multi-channel approach has enhanced customer access convenience, strengthening the recall that ‘Star Health is around the corner’.

* The company’s agent count increased by 14% to 626k in FY23. STARHEAL continued to enhance its reach in the hospital network with the addition of 2,042 hospitals in FY23. Additionally, the company entered into pre-agreed agreements with 1,996 hospitals. In FY23, it processed 1.08m claims through agreed network hospitals, of which 73.3% were cashless claims.

* During FY23, the company addressed 95% of cashless claims within 90 minutes, with 90% of reimbursements settled within seven days. The company handles all claims in-house, along with assurance visits to hospitals to assist customer interests and free supplementary medical opinions.

* STARHEAL has enabled the use of technology in business strategy, data collection and analysis, talent management, risk understanding, market understanding, systems security and operational processes. In FY23, the company invested extensively in digital platforms, data platforms, automation and omni-channel accessibility.

* Valuation: We expect the company to report a 19% CAGR in overall gross premium over FY23-25, driven by a 20% CAGR in retail health and a 10% CAGR in group business. Claims ratios are likely to normalize at ~64%, with the combined ratio at ~93%. These factors should boost STARHEAL’s profitability over FY23-25, with RoE improving to 16% in FY25E from 11% in FY23. We reiterate our BUY rating on the stock with a 1-year TP of INR760 (premised on 33x FY25E EPS).

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