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Rakesh Jhunjhunwala's second most valued stock in his portfolio is the general insurance services provider, Star Health and Allied Insurance. Since its market debut, Star Health shares have nearly halved and yet Jhunjhunwala has held onto the stock. Looks like good days are about to come for Star Health investors as experts believe the company is a distant market leader in the retail health segment. ICICI Securities analysts have given a buy rating on the stock.

On Wednesday, Star Health shares closed at 475.95 apiece down by 2.24% on BSE. At the latest closing price, the company's market valuation stood at 27,419.49 crore.

Star Health shares entered the market on December 10 last year. The stock had hit a 52-week high of 940 apiece during the initial days before correcting.

The company launched its IPO from November 30 to December 2 last year. The issue did not fully subscribe and has received 79% subscription against its offered size.

Compared to its 52-week high, Star Health shares have plunged by at least 49% on BSE as of July 6, 2022. Meanwhile, against its IPO's issue price of 900, the stock has dipped by over 47% as of today.

As of March 31, 2022, Rakesh holds 82,882,958 equity shares or 14.40% in Star Health, while his wife Rekha Jhunjhunwala holds 17,870,977 equity shares or 3.11% in the company. Rakesh manages both his and wife's portfolio. Together, the couple's shareholding in Star Health is around 100,753,935 equity shares or 17.5% as of March 31, 2022. The company is the second-largest in his portfolio both in value and percentage terms.

As per Trendlyne data, Jhunjhunwala's shareholding is valued at 4,910.2 crore.

ICICI Securities expect Star Health stock to touch the 700 mark ahead.

In their research note, research analysts Ansuman Deb and Ravin Kurwa at ICICI Securities said retail health is a high-growth business with high entry barriers. This is proved by the fact that (1) retail health premiums have grown by 20% CAGR over the last 5 years and (2) no player has been able to grow its market share meaningfully apart from Star Health and Care Health over the last 5 years.

The analysts said, in such an industry scenario, STAR is a distant market leader in retail health (31% as of FY23-TD based on monthly GDPI data released by General insurance council) and well-entrenched with 550k agents, 12,820 network hospitals, and 807 branches. Additionally, the high share of PSU insurers with low solvency continues to provide a growth opportunity for strong players like Star.

According to the analysts, no company has been able to garner a significant amount of market share in the retail health segment except Star Health and Care Insurance (and also HDFC Ergo due to the acquisition of Apollo Munich which was SAHI). Star/Care retail health market share has improved from 23%/4% in FY18 to 33%/7% in FY22, respectively.

"We value the stock with a revised target price of Rs700 based on 40x (earlier 50x) FY24E EPS of Rs17.5 (earlier 16.7). We factor GDPI CAGR of 16.5% between FY22-24E, investment leverage of 2.3x in FY24E, combined ratio of 95% and investment yield of 7% for FY24. Our change in multiple reflects the possibility of heightened competition, subsequent covid waves, and overall increase in the cost of capital," the analysts added.

Compared to Wednesday's closing price and ICICI Securities target price, the stock has a potential of more than 47% upside.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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