CLSA reiterates 'buy' on Star Health; sees 28% upside ahead

Hong Kong based investment group CLSA has reiterated its ‘buy’ rating for standalone health insurance major Star Health, keeping the target price unchanged at Rs 715, an upside of 28 per cent. This is based on a few green signals shown by the company. 

Star is the second largest health insurer in India(retail and group basis).

The company’s stock was trading 0.9 per cent lower at Rs 553 on Tuesday’s intraday deals. The stock’s value grew by mere 7.7 per cent in FY24 while the Nifty50 index grew by 29 per cent during the same period. 

CSLA in its recent stock report stated that all large health insurers saw 1 to 10 ppt increase in loss ratios during the first nine months of FY24 on YoY (year on year) basis. 

Whereas Star and ICICI Lombard’s health books were the best performing with just 1 to 2 ppt increases in loss ratios. The highest increase was seen in Aditya Birla Health (up 11 ppt YoY) and Bajaj Allianz Health (up 10 ppt YoY). 

According to the report, Star has also rejected less claims till December FY24, though the company still had the highest rejection ratio, a key reason being a higher share of retail book, the report noted. 

The health insurer was also the best performer among other players in pulling breaks on expenses, as Star is the only company whose expense ratio is at 31 per cent which is well within the stipulated cap of 35 per cent. As per regulations, insurers have till FY26 to control costs.  

Comparatively, Care is now closer to its expense cap of 37 per cent. Niva Bupa and Aditya Birla Health are still elevated at 40 per cent to 45 per cent, Shreya Shivani, Piran Engineer and Kushagra Goel wrote. 

Star Health is growing slower than its peers at a rate of 18 per cent against other standalone health insurers and general insurers which are growing at a rate of 25 to 40 per cent.