'Star' Jhunjhunwala stock can deliver up to 34% return post all-round Q4 show

Star Health and Allied Insurance, where Jhunjhunwala family owns 17.32 per cent stake, reported a profit after tax (PAT) of Rs 101.79 crore for the March quarter against a loss of Rs 82.04 crore in the year- ago quarter. Sales for the quarter rose 11.2 per cent YoY to Rs 2,912.52 crore from Rs 2,621.17 crore in the year-ago quarter. A select brokerages have price targets of  up to Rs 795, suggesting a 34 per cent potential upside ahead for the stock.

Gradual improvement in loss ratio and combined ratio will augur well for the company, said B&K Securities as it foresees positive momentum around the stock on the back of improved profitability. The brokerage has upped its target price to Rs 686 from Rs 640 earlier and maintain its 'Buy' recommendation on the stock.

Shares of Star Health have jumped 12 per cent in the last one month, recouping year-to-date losses fully.

Star's management has guided for a higher-than-industry growth in premium and an improvement in combined ratio in FY24. Motilal Oswal said the confidence in the guidance stems from price hikes, strong growth in benefit-based products within the banca channel, and significant benefits arising from fraud claim detection. This brokerage has raised its FY24 and FY25 earnings estimates for Star Health by 3 per cent and 6 per cent mainly led by lower expense ratios.

"These gains were partially offset by weaker-than-forecasted investment performance. Our combined ratio estimates are lower by 30bp/60bp for FY24/FY25 to 93.5 per cent/92.7 per cent. Reiterate Buy with a revised target of Rs 720 (based on 36x FY25E EPS)," Motilal Oswal.

Emkay Global said Star Health reported decent performance for Q4FY23, completing the year post the pandemic with a combined ratio for FY23 at 95.3 per cent, coming near the top end of 93-95 per cent combined ratio target.

Premium growth for FY23 at 13 per cent was largely in line with Emkay's estimates and was driven by 18 per cent growth in retail and a 33 per cent decline in group. This was in line with management’s guidance of exiting the large corporate group health business.

"With the company achieving the 95.3 per cent CoR, we believe Star is on the right track to achieve profitable growth, given its expanding hospital network, strong distribution network, and some normalization in medical inflation. Given that Star is within the 35 per cent expense of management (EoM) cap, the company is well positioned in the new EoM regulations era," it said while suggesting a target of Rs 685 on the stock.

CoR stands for combined operating ratio.

HDFC Institutional Equities said Star's printed soft NEP (net earned premium) growth of 11 per cent YoY, which was 4 per cent below its estimates), impacted by a slowdown in group business; however, loss ratios clocked in at 62 per cent driving COR to 91.4 per cent (down 3.4 percentage points QoQ).

"While FY23 RoE was sub-optimal at 12 per cent due to soft growth (up 15 per cent YoY), we expect Star to deliver a rebound in growth (22 per cent CAGR over FY23-25E) and stable loss ratios, supported by a price hike in its flagship product and tighter underwriting and claims review process," HDFC Institutional Equities said.

As the largest standalone health insurer, HDFC Institutional Equities believes that Star Health is anchored in a very strong distribution network, retail-dominated business mix and best-in-class opex ratios. This brokerage has a target of Rs 795 on the stock.

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