This Rakesh Jhunjhunwala-backed stock jumps 5%; analysts see more upside

Shares of health insurance firm Star Health and Allied Insurance Company surged nearly 5% in opening trade on Monday after brokerage firm Motilal Oswal initiated a ‘buy’ coverage on the stock. The shares extended rally for the second straight session after the company received a buy call from the brokerage house at a target price of ₹750 per share, an upside of 17.6% from the last closing price of ₹637.60 apiece on the BSE. The stock has fallen nearly 30% since its listing on the domestic exchange on December 10, 2021.

Ace investor Rakesh Jhunjhunwala and his wife Rekha Jhunjhunwala together own a 17.51% equity stake in the company, as per the latest shareholding pattern available on the BSE. Jhunjhunwala is the second-biggest promoter of the company after Safecrop Investments India LLP, which holds 41.19% shares in the insurance firm.

The stock received a buy call, citing improvement in the earnings going ahead and improvement in the overall health insurance industry. Star Health, the market leader in the Indian health insurance industry with a retail market share of 31%, is poised to grow at a relatively faster pace vis-à-vis the overall health insurance industry,” Motilal Oswal said in its initiation note.

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.

Meanwhile, research firm Crisil has forecasted that the health insurance industry is expected to see a CAGR of 18%, 23%, 15% and 11% in the total, retail, group and government segments, respectively, over FY21–25. Analysts at Emkay Global pegged a 20% rise in the niche market over a 10-year period and expect Star Health to further boost its presence in the nascent market.

On Monday, Star Health shares opened at day’s high of ₹668.80, up 4.9% against Thursday’s closing price of ₹637.60 on the BSE. The stock trades marginally higher than its 52-week low of ₹603 touched on March 16, 2022. It hit a 52-week high of ₹940 on its listing day on December 10, 2021. The market capitalisation of the company today stood at ₹37,564 crore.

Star Health and Allied Insurance, owned by a consortium of investors including Rakesh Jhunjhunwala and Westbridge Capital, raised ₹6,400 crore in its initial public offering (IPO) at a price range of ₹870-900 apiece. Formed in 2006, the private health insurer captures 15.8% of the market share, while it holds 31% in the retail health segment.

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.