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Star Health & Allied Insurance Company Ltd>
  • CMP : 528.5 Chg : 11.55 (2.23%)
  • Target : 700.0 (16.67%)
  • Target Period : 12-18 Month

08 May 2023

Steady Q4; strong guidance remains encouraging...

About The Stock

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

  • Star Health is a market leader in the retail health insurance segment with ~34% market share as of March 2023
  • Star Health has 835 branches and 14200+ network hospitals, with a presence in 25 states and five union territories

Premium growth remains healthy.

  • GWP up 13.8% YoY to ₹ 4199 crore, NWP up 15.0% & NEP up 11.1% YoY
  • Incurred claims flat YoY, QoQ. Claims ratio was at 65%
  • Combined ratio within guidance at 95.3%; underwriting loss at ₹ 65 crore
  • Net profit was at ₹ 102 crore vs. a loss of ₹ 122 crore YoY
What should Investors do?

Star Health is expected to maintain its leadership in the retail health segment with sustainable long term growth opportunity. Higher than industry growth and targeted improvement in combined ratio provides confidence.

  • We maintain BUY rating on the stock
Target Price and Valuation

Given levers for improvement in RoE – strengthening of distribution channels through banca tie-up, focus on profitable growth, elevated yields and issuance of Esop at market price, we remain positive on the fundamental strength. Thus, we assign a multiple of 2x on FY25E GDPI and arrive at a revised target price of ₹ 700 from ₹ 650 earlier.

Key Triggers for future price performance
  • Price hikes, increasing proportion of specialised products to keep premium growth ahead of industry thereby enabling market share leadership
  • Improving footprints in rural India, increase in bancassurance tie-up along with strengthening of own agency channel to propel business momentum
  • Strong distribution (agency and banca tie-up), hospital network and claim management to act as moats aiding profitable growth momentum
  • Expansion of hospital tie-ups, faster claim settlement to keep claim ratio at 62-65%. Focus on efficiency to further improve combined ratio ahead
  • Elevated yields and issuance of new Esop at market price to further aid RoE
Alternate Stock

Apart from Star Health, we like SBI Life Insurance.

  • It is among the most dominant players in the Indian life insurance industry
  • BUY with a target price of ₹ 1350

Key Financial Summary

Particulars FY20 FY21 FY22 FY23 3 Year CAGR(FY20-FY23) FY24E FY25E 2 Year CAGR (FY23-FY25E)
Gross written premium (GWP) 6,890.7 9,388.5 11,462.3 12,950.9 23.4 16,052.3 19,262.8 22.0
Net Incurred Claims 3,087.4 4,369.5 8,540.0 7,320.4 33.3 9,352.0 10,970.6 22.4
Underwriting Profit/Loss 168.4 -1,331.8 -2,061.6 204.7 - 529.4 677.5 -
Profit after Tax 272.0 -825.6 -1,040.7 618.6 - 841.1 1,038.0 -
NWP/Net Worth (x) 3.2 1.7 1.7 1.9 - 1.5 1.6 -
Price/Float (x) 0.8 0.5 3.3 2.6 - 1.9 1.7 -
P/GWP (x) 5.1 3.7 3.0 2.7 - 2.2 1.8 -
P/E (x) 128.0 -42.2 -28.9 48.4 - 42.6 34.6 -
Source: Company, ICICI Direct Research

Variance Table

Policyholders Account Q4FY23 Q4FY23E Q4FY22 YoY% Q3FY23 QoQ%  
Gross Premium Written 4199.2 3263.3 3689.2 13.8 3096.7 35.6 Retail health market share remained buoyant at 34% 
(-) Reinsurance ceded 206.0 195.8 215.4 (4.3) 153.3 34.4  
Net written premium (NWP) 3993.2 3067.5 3473.8 15.0 2943.4 35.7  
Net earned premium (NEP) 2912.5 2914.2 2621.2 11.1 2867.2 1.6  
(-) Net Incurred Claims 1805.4 1865.7 1784.8 1.2 1827.8 (1.2) Claim ratio improved at 62%
(-) Net Commission Expense 561.2 507.6 507.2 10.6 402.6 39.4 Comission ratio up at 14.1% 
(-) Operating expenses related to insurance business 610.7 662.0 546.4 11.8 511.0 19.5  
(-) Total expense 2977.3 2697.7 3105.7 (4.1) 3072.0 (3.1)  
Underwriting Profit/Loss (64.8) (26.2) (217.2) (70.2) 125.8 NA Combined ratio improved at 91.4% 
Investment Income 115.7 11.9 4.0 2791.1 13.6 753.4 Higher yield benefit investment income
Operating Profit/Loss 75.7 153.8 (156.6) (148.3) 331.2 (77.1)  
Transfer to Shareholders Account 75.7 153.8 (156.6) (148.3) 331.2 (77.1)  
Shareholders Account Q4FY23 Q4FY23E Q4FY22 YoY% Q3FY23 QoQ%  
Operating Profit/Loss 75.7 153.8 (156.6) (148.3) 331.2 (77.1)  
Investment Income 77.7 61.2 20.6 276.9 69.8 11.2  
Other Income 1.33 1.50 1.17 13.7 1.73 (23.1)  
Profit before tax 136.7 155.3 (155.4) (187.9) 332.9 (58.9)  
(-) Provision for Taxation 34.3 39.6 33.7 1.6 (71.3) (148.1)  
Profit after Tax 102.4 115.7 (121.7) (184.2) 261.6 (60.9) High opex partially offset premium accretion


Q4FY23 Earnings Conference Call highlights

  • In Q4FY23, health insurance industry premium (including PA) grew 25.4%, driven largely by 28% growth in Group Health and 16% growth in Retail Health
  • Star Health recorded ~25% growth in premium in April 2023 with claim ratio being lower YoY. Growth is heterogeneous from all lines of business – retail as well as group
  • For FY23, Star Health’s retail health premium grew at ~18% vs. industrys retail health growth of 15.3%. Market share in the retail health segment increased from 33% in FY22 to 34% in FY23
  • The management aims to grow premium at a higher than industry rate thereby further increasing retail health market share. Growth in FY24E could be driven by value (55-60%) and volume (40-45%). Share of the group segment to increase to 10% of overall premium. Focus on profitable growth to keep loss ratios in the guidance range
  • Average sum assured of new policies has increased by 13% to ~| 9 lakh per policy. Policies with | 5 lakh sum insured and above constitute 70% of portfolio vs. 64% in FY22
  • Premium from benefit products has grown by 53% in FY23 with proportion in overall GWP increasing by 62 bps YoY to 2.3% in FY23
  • Launched two new products in Q4FY23 - Star Special Care Gold and Star Group Health Benefit Plus. Special Care Gold is a product tailored specifically for individuals with disabilities and those who are HIV-positive. Star Group Health Benefit plan offers critical illness cover up to 54 critical illnesses, personal accident cover, hospital cash cover an EMI protect due to hospitalisation. It also covers health indemnity & health indemnity top-up
  • Contribution from the agency channel was at 82% with net addition of 76000 agents in FY23 (total agent count at 625860). Tie up with corporates and banca channel picking up with contribution growing at 43% in FY23
  • Digital sourcing from web and tele sales models has grown 28% YoY in FY23 to | 625 crore
  • Tie up achieved with leading banks - Standard Chartered Bank, India Post Bank and ESAF Small Finance Banks for distribution of Star Health products through their platforms
  • Cashless claim settlement for 73% of claims by volume (63% in FY22) and 80% by value (71% in FY22)
  • Anti-fraud digital initiatives are operational and provided ~1.3% benefit in claim ratio in FY23, which is well in-line with guidance of ~1% benefit to be achieved
  • Expense ratio fell to 30.3% in FY23 vs. 30.8% in FY22 on account of efficient cost control and management. Claims ratio improved from 87.1% in FY22 to 65% in FY23 (includes 0.4% impact of Covid claims). Thus, combined ratio improved from 117.9% in FY22 to 95.3% in FY23. For Q4FY23, the opex ratio has improved to 29.4% vs. 30.3% in Q4FY22 despite lower group business
  • Currently, 4.1% of portfolio is invested in ETFs, which is planned to increase up to 7%. With a rise in interest rates and deployment of fresh investments at higher yield, portfolio yield increased from 6.71% in Q4FY22 to 7.34% in Q4FY23
  • The management aims to continue improvement in combined ratio in FY24E
  • New Esop will be issued at market price with no substantial impact on P&L
  • Growth in retail health business at 18% in FY23 - split equally between volume and value
  • Total ~2.5% of policies are long term plans i.e. plans for more than one year. Star Health aims to focus on increasing proportion of long term policies ahead
  • Management is targeting RoE at 15-16% in FY23 driven by price hike, growth and end to Esop expense. RoE in FY22 at 12.5% includes impact of Esop expense
  • With implementation of IFRS, wherein cost is deferred over the policy period, positive impact of 300-400 bps could be seen on RoE



ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15% 

Pankaj Pandey

Head – Research




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