This insurance stock owned by Rakesh Jhunjhunwala has the potential to provide substantial future returns

Star Health and Allied Insurance, a supplier of general insurance services, is the second most valuable stock in Rakesh Jhunjhunwala’s portfolio. Star Health’s stock has almost halved since it first entered the market, yet Jhunjhunwala has continued to hold onto the shares. According to industry analysts, Star Health is a far-reaching market leader in the retail health sector, so it looks like good times are just around the corner for investors. The stock has been given a buy rating by ICICI Securities analysts.

On the BSE, Star Health shares finished at ₹475.95 on Wednesday, down 2.24 percent. The company’s market value, as of the most recent closing price, was ₹27,419.49 crore.

On December 10 of last year, Star Health shares first appeared on the market. Before falling, the stock had reached a 52-week high of ₹940 per share.

From November 30 to December 2 of last year, the company started its IPO. In comparison to its advertised size, just 79 percent of readers have subscribed to the issue.

As of July 6, 2022, Star Health shares on the BSE have fallen by at least 49% from their 52-week high. As of today, the stock has decreased by more than 47% from its IPO issue price of ₹900.

Rakesh had 82,882,958 equity shares, or 14.40 percent of Star Health, as of March 31, 2022. His wife Rekha Jhunjhunwala owned 17,870,977 equity shares, or 3.11 percent of the business. Both Rakesh and his wife’s holdings are managed by him. As of March 31, 2022, the couple’s combined stock stake in Star Health was approximately 100,753,935 equity shares, or 17.5 percent. The business ranks second in terms of value and percentage inside his portfolio.

Jhunjhunwala’s ownership is valued at ₹4,910.2 crore according to Trendlyne statistics.

The Star Health stock is anticipated to reach the ₹700 level by ICICI Securities.

Retail health is a high-growth industry with significant entry barriers, according to ICICI Securities research analysts Ansuman Deb and Ravin Kurwa in their research note. This is demonstrated by the following facts: (1) Over the past five years, retail health premiums have increased by 20 percent CAGR; and (2) Aside from Star Health and Care Health, no other player has been able to significantly increase its market share.

According to the researchers, in this type of business environment, STAR is a far-off market leader in retail health (31% as of FY23-TD based on monthly GDPI statistics given by General insurance council) and well-established with 550k agents, 12,820 network hospitals, and 807 branches. Strong players like Star continue to have expansion opportunities due to the huge percentage of PSU insurers with low solvency.

Analysts claim that Star Health and Care Insurance is the only firm to have significantly increased its market share in the retail health sector (and also HDFC Ergo due to the acquisition of Apollo Munich which was SAHI). From 23 percent /4 percent in FY18 to 33 percent /7 percent in FY22, respectively, Star/retail Care’s health market share has increased.

“We value the stock with a revised target price of Rs700 based on 40x (earlier 50x) FY24E EPS of Rs17.5 (earlier 16.7). We factor GDPI CAGR of 16.5% between FY22-24E, investment leverage of 2.3x in FY24E, combined ratio of 95% and investment yield of 7% for FY24. Our change in multiple reflects the possibility of heightened competition, subsequent covid waves, and overall increase in the cost of capital,” the analysts added.

The stock might increase by more than 47% from its closing price on Wednesday to ICICI Securities’ target price.