Star Health stock climbs 7%; Investec bullish on structural tailwinds

Star Health and Allied Insurance shares jumped 6.8 per cent in trade, logging an intra-day high at ₹487.35 per share. At 12:18 PM, Star Health and Allied Insurance was trading 2.73 per cent higher at ₹468.45 per share. In comparison, BSE Sensex was up 0.6 per cent at 82,721.07.  

Investec has upgraded Star Health and Allied Insurance to ‘Buy’ with a target of ₹535 per share, citing clear recovery after a difficult FY24–FY25, with an inflection visible in 9MFY26. The brokerage believes that going ahead, improving claims trends, tighter cost control, and structural tailwinds could sustain the turnaround.

Inflection in loss ratio, costs

The brokerage noted that Star’s LR and expenses have begun to improve, with LR and administrative expenses (as a percentage of revenue) improving by 90 basis points (bps) and 80 bps year-on-year (Y-o-Y) in 9MFY26, respectively. This sequential LR improvement stands out as peers in the standalone health insurer (SAHI) space have seen pressure in the same period. 

 

The brokerage anticipates LR to improve further citing three key tailwinds:

• Fresh business growth rebound after the goods and services tax (GST) cut
• Full-year benefit of annual premium hikes
• Stronger industry and company actions to curb fraud, waste, and abuse, along with measures to address hospital misuse

It added that while peers Care and Niva reported 700 bps and 1,000 bps Y-o-Y LR increases in 9MFY26, Star has delivered sequential improvement, indicating early benefits of corrective actions and execution discipline.  READ | Nomura rates Lloyds Metals 'Buy' on initiation; sees 40% upside potential

Strong franchise stickiness despite claims noise

The brokerage also highlighted Star’s customer retention despite adverse publicity around claims servicing. Star’s premium renewal ratio stood at 99 per cent in 9MFY26, and has been 95 per cent in most periods, suggesting strong brand resilience and franchise stickiness.

Outlook

Investec expects Star to deliver insurance revenue growth of 16 per cent Y-o-Y and IFRS return on equity (RoE) of around 13 per cent in FY27E/FY28E. It forecasts LR to improve to 69 per cent in FY27E/FY28E, supported by stable acquisition costs and an investment yield assumption of 7.8 per cent.

Key risks

The brokerage flagged risks, including market share loss and the inherent challenge in retail health insurance, where profitability can weaken as customer vintage increases. However, it expects near-term vintage pressure to ease as fresh growth has picked up post GST cut, providing LR reduction visibility over the next 18–24 months (at least till Q2FY27).

 

Disclaimer: Views and recommendations are those of the brokerage/analyst and are not endorsed by Business Standard. Readers should consult a financial adviser before taking investment decisions.