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Strong growth in retail health, outlook positive

Star Health and Allied Insurance company commenced its operations in 2006 and is India’s first standalone health insurance provider. The company offers health, personal accident and both domestic and overseas travel insurance products. The company has one of the largest health insurance networks in India comprising more than 14,200 hospitals

• Net earned premium (NEP) grew 14.7% YoY to Rs. 3,206cr in Q2FY24, led by double-digit growth in retail health insurance.

• The combined ratio improved 130bps YoY to 99.2%.

• Continued growth momentum in retail health premium, bancassurance partnerships, digital transformation, and a healthy solvency ratio auger well for the company’s future performance. The stock is available at attractive valuations. With a positive view, we upgrade our rating to BUY with a revised target price of Rs. 653, based on 4.85x FY25E BVPS.

Growth in NEP led by the retail health segment

In Q2FY24, gross written premium (GWP) increased 16.9% YoY to Rs. 3,732cr. NEP of health insurance including personal accident rose 14.7% YoY to Rs. 3,206cr, led by robust growth in the retail health segment (up 17.3% YoY to Rs. 3,023cr). The company registered a 33% market share in retail health, which is over 3x the second-largest player in the industry. Revenue from agencies accounted for 82% of the total business. Agencies remain the company’s preferred distribution network. During H1FY24, the company added 40,000 new agents, taking its overall tally to 665,000 agents.

Profit growth despite higher claims

Operating expenses grew 17.0% YoY to Rs. 3,284cr, owing to higher claims (up 15.5% YoY to Rs. 2,202cr). Operating expenses to GWP increased 20bps YoY to 16.0%. The combined ratio increased 130bps YoY to 99.2%. The claims ratio increased 50bps YoY to 68.7%, while the expense ratio increased 80bps YoY to 30.5%. However, PAT came in at Rs. 125cr (up 34.6% YoY) aided by higher other income. Star Health’s solvency ratio of 2.13x was well above the mandated regulatory requirement of 1.5x.

Key concall highlights

• The average sum insured of new policies rose 10% YoY to Rs. 9.6 lakh per policy. Sum insured of Rs. 5 lakhs and above policies now account for 77% of the total portfolio (vs. 69% in Q2FY23).

• The company launched 4 new products during the quarter. And to augment the existing product suites, it also launched various add-on covers such as Young Star Extra Protect, home care treatment covers, and flu vaccination covers.

• GWP acquired via online channels was Rs. 480cr in H1FY24 (vs. Rs. 410cr in H1FY23). The company also witnessed 38% growth in fresh digital business in H1FY24. Cashless authorisation for 90% of claims was settled in less than 2 hours.

• The company has 14,230 network hospitals and 869 branch offices across 25 states and 5 union territories in India, as on September 30, 2023.

Valuation

Strong growth momentum in retail health premium, new product launches, sustained focus on digitalisation, wide distribution network, new bancassurance partnerships and a healthy solvency ratio auger well for Star Health’s future performance. It recently launched a dynamic UPI QR code-based payment option to simplify the process of purchasing and renewing health insurance. The company is a market leader with a 33% market share in the retail health space and is well positioned to tap into the large addressable, and yet, underpenetrated healthcare segment. We hereby upgrade our rating on the stock to BUY with a target price of Rs. 653, based on 4.85x FY25E BVPS.

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