Star Health and Allied Insurance Company Ltd. – BUY

CMP – Rs. 520/- share

Target – Rs. 700/- share

Upside – 35%

Star Health & Allied Insurance Co. Ltd. (SHAICL) is one of India’s leading private health insurance companies with its headquarters in Chennai. It began its operations in 2006 as India’s first standalone health insurance provider. The company has an association with over 14,000 network hospitals, 835 branch offices spread across the country, over 6.30 lakh agents and over Rs. 30,300 crores in paid claims.

Let’s explore why “SHAICL” is a stock worth investing in

SHAICL has an annuity business with the highest market share of around 30% in the retail health insurance industry and the widest coverage of 14,000 hospitals and 400 doctors to access claims.

The health insurance industry has been able to reach just 3.5% of the Indian population and the balance of the healthcare cost is paid out of pocket in India vs 17% for other markets. This implies a huge growth opportunity and headroom to grow above 20% CAGR for many more years.

The company is also entering the banking channel in a big way and this will further stimulate growth. It is the only Indian health insurance company having a combined ratio of less than 100% i.e. 94.5% and is making a profit at the underwriting level (PBT) which is Rs. 227 crores. Also, the recent price hikes in their key products will ensure profitable growth.

Competitive Strength

Star Health has a large number of individual agents, corporate agents, banks, and brokers, which helps it to reach a large customer base and provide them with the necessary assistance in selecting the most appropriate health insurance policy and making claims.

The distribution network of SHAICL is well spread and includes the largest branch network among non-public health insurance providers in India. SHAICL is expanding its share in channel partner companies to 15-20% to have more control over the distribution channel.

SHAICL handled over 8.8 million claims since its inception. Having 300+ medically qualified

resources for claims indicates that the company has a strong focus on ensuring that claims are handled accurately and efficiently, which can help to improve customer satisfaction and trust in the company.

Valuation and Outlook

With the increase in allowable bancassurance partners from 3 to 9, there is scope for Star Health to penetrate the Banca/NBFC (Banking/Non-Banking Financial Company) channel. The Banca/NBFC channel is an emerging distribution channel for insurance products in India. With the new regulations providing more flexibility, there could be opportunities for Star Health to expand its reach in the Banca/NBFC channel. 

We have given a “BUY” rating to the stock.

On the valuation front, we arrive at a target of Rs. 700 per share, translating into an upside of 33%.