Stock to Buy: Motilal Oswal says this insurance stock will give you a 20% return, and retail health care will have a CAGR of 20–25%.
In a report released on June 2, 2022, Motilal Oswal Financial Services, a leading brokerage firm, told investors to buy Star Health & Allied Insurance Company Ltd. (Star Health Insurance) shares with a target price of Rs 840/share. In its report, the brokerage also said that the Retail Health segment is expected to grow by 20–25% CAGR over the next two to three years.
Star Health Insurance Stock Overview: CMP, Target price, Return, 52 Week Low and High
The stock opened today at Rs 718.15. It closed yesterday at Rs 718.50. At the moment, it is trading at Rs 705.25 (CMP), which is down 1.84 percent. Based on the CMP and the brokerage's target price of Rs 840, the stock could gain 20 percent in the next 12 months. The stock's 52-week low was Rs 583.60, and its 52-week high was Rs 940. In the past year, the stock has dropped by about 15%.
Strengths of the company "It aims to raise the sum assured by: 1) increasing the number of policyholders who increase their sum assured at the time of renewal in FY23 (currently, only 7-8 percent do so), and 2) making more people aware of what an appropriate sum assured is," the brokerage said in the report. "15 percent of the company's GWP comes from specialised products," the brokerage said. It was the first company to offer specialty products like coverage for newborns from day one, transplants where the donor is also covered, and artificial insemination. Before COVID, the claim ratio for senior citizen products, which make up a big part of specialised products, was better than the claim ratio for the whole company.
Star Health Insurance is doing the following things to lower the number of claims it has to pay out:
1) Taking Action Against Hospitals.
2) forming more partnerships with hospitals, where it acts as a claim checker.
3) Increase the number of hospitals in its preferred network with agreed-upon prices.
The future of money
The brokerage's report says, "Within the Group business, the company wants to leave large corporates and focus only on small and medium-sized businesses (SMEs), with a combined ratio of 95–96%." Its goal is to move the SME segment much more quickly. The agency channel, which has a 75–80% share, is expected to lose a lot of market share in the next few years as banca, digital, and other channels grow quickly. From 4 percent in FY22 to 8 percent in FY23, the share of banca channel will rise. It also said, "The management is sure that the Retail Health book will grow at a CAGR of 20–25%, with a combined ratio of 92–94%, and without the need to raise any more capital over the next two years." It wants to improve its OPEX ratio by 50–100bp per year and keep its combined ratio between 92% and 94%, with a return on equity of 16–18% over the next few years. By the end of FY23, the solvency ratio will go up to 1.95x, and it will be based on commissions instead of claims.
Key factors
According to the brokerage, the most important factors for growth will be:
1) A greater focus on cities that aren't as well known
. 2) Form partnerships with new bancas with the goal of doubling its share to 8% by FY23.
3) The share of digital sales went up.
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