This Jhunjhunwala portfolio stock may deliver solid returns in 12 months, says Goldman Sachs

Goldman Sachs initiated coverage on India’s largest standalone health insurer Star Health and Allied Insurance Company with a 12-month target price of Rs 770, indicating an upside of over 18 per cent from the current market price of Rs 650. According to the overseas financial firm, the health insurer had a market share of 14 per cent in the health segment in FY23.  

With a gain of 7.5 per cent, shares of Star Health have underperformed the benchmark equity index BSE Sensex in the past three months. The scrip advanced to Rs 635.95 on July 31, 2023 from Rs 591.65 on April 28, 2023. On the other hand, the 30-share Sensex gained 9 per cent during the same period. 

“The stock has underperformed over the last 3 months due to slower growth against industry and potential negative impact on volumes due to the May price hike in their largest product (FHO). However, we see multiple catalysts over the next 12 months including a pickup in customer renewals for FHO towards the end of the 4m grace period, larger banca tie-ups and scale up of rural business,” Goldman Sachs said in a report.  

The late ace investor Rakesh Jhunjhunwala and his wife Rekha Jhunjhunwala together held a 17.31 per cent stake in the company as of June 30. 

“We expect most private players to benefit from the structural growth in the health segment, Star is best positioned given its competitive moats including agency strength (2.6x second player), underwriting prowess (600–900 bps lower combined ratios vs coverage),” Goldman Sachs said adding Star’s widespread presence and reach enables it to negotiate better with hospitals as it has amassed partnerships with over 14,200 tie-ups currently. 

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In the bull case scenario, Goldman Sachs sees a 44 per cent upside in Star Health. On the other hand, it sees a 20 per cent fall in the bear case scenario. 

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