Analysts see 20% upside in this Rakesh Jhunjhunwala-backed stock; do you own it?
Big bull Rakesh Jhunjhunwala's portfolio is closely followed by share market investors. However, some of Jhunjhunwala's portfolio stocks have failed to concede with his proven record of fantastic returns. Health insurance major Star Health and Allied Insurance is one of those stocks that failed to impress Dalal Street despite interest from the marquee investor.
Star Health and Allied Insurance is owned by a consortium of investors including Rakesh Jhunjhunwala and Westbridge Capital. Rakesh Jhunjhunwala and his wife Rekha Jhunjhunwala together hold a 17.51% share in the private health insurance company. Jhunjhunwala is the second-biggest promoter of the company after Safecrop Investments India LLP, which holds 41.19% shares in the insurance firm, as per BSE data.
Shares of Star Health have plummeted 22% since its listing on December 10, with the share price falling from IPO issue price of ₹900 apiece to ₹700 today. The shares of the country’s largest private health insurer touched a high and low of ₹940 and ₹603, respectively.
Analysts, however, are bullish and expect the stock to notch double-digit growth, deriving comfort from the company’s wide hospital and distribution network as well as its strong dominance in the fast-growing health insurance market.
The global brokerage CLSA has initiated coverage on Star Health and Allied Insurance Company with a target price of ₹830, predicting nearly 20% gains from Wednesday’s closing price of ₹700.35 on the BSE.
The agency believes that the company’s strong presence in a fast-growing industry would support its revenue growth and market share gains. "We expect the industry to expand three times plus in the next five years with gross premiums growing from $4 billion to $12 billion and net population (excluding below poverty and government employees) covered by retail policies to increase from 6% today to 11%," says CLSA in its report.
Adding to it, the health insurer’s innovative product suite, largest individual agent base and in-house-claim management augur well for the growth of the stock. "Star's innovative products, wide distribution, hospital network, in-house claim management and focus on the profitable retail segment should support 29% CAGR in premiums over next two years and return on equity expansion to 20% in FY24," the report noted.
Last week, domestic brokerage firm Motilal Oswal had initiated a ‘buy’ coverage on the stock, with a target price of ₹750 per share. The brokerage expects Star Health to report a gross premium compound annual growth rate (CAGR) of 25% over FY21-24E, from a loss of ₹830 crore in FY21 to a net profit of ₹1,080 crore in FY24.
In the December quarter of 2021, the health insurance major posted a net loss of ₹578.37 crore, compared to a loss of ₹241.90 crore in the year-ago period. However, its sales soared 78.1% YoY to ₹2,528.3 crore in Q3 FY22.
On Thursday, Star Health opened flat at ₹700 and gained as much as 1.3% to hit an intraday high of ₹708.95 on the BSE.