Newly listed Rakesh Jhunjhunwala portfolio stock could rally over 20% as Motilal Oswal sees upside
The Rakesh Jhunjhunwala-backed company Star Health's shares made stock market debut in December 2021
Star Health offers a unique proposition to play the fastest growing segment in the General Insurance space. Given the market leadership in the Retail Health business, strong earnings growth prospects (25%+ CAGR), limited cyclicality risk (commercial lines and motor insurance have high cyclicality), and healthy RoE profile (15–17% over the medium term), domestic brokerage firm Motilal Oswal believes the stock deserves a premium.
Moreover, Star Health’s higher earnings growth and higher contribution from underwriting profit v/s investment income strengthens the case, the domestic brokerage and research firm said in a note.
Based on these factors, Motilal Oswal has arrived at fair value of ₹750 (target price) and initiate coverage with a Buy rating on Star Health and Allied Insurance shares, implying a potential upside of over 20% from current levels. The Rakesh Jhunjhunwala-backed company Star Health's shares made stock market debut in December 2021.
Star Health, the market leader in the Indian health insurance industry, with retail market share of 31%, is poised to grow at a relatively faster pace vis-à-vis the overall health insurance industry, believes Motilal Oswal.
However, “while the Covid-19 pandemic did bring a pull for demand for health insurance, it also brought along with it a higher claims ratio. Further covid waves could be detrimental to earnings given the severity of Covid-19 claims is 2x non-Covid-19 claims," the brokerage note stated. Further, the increase in competition from multi-line general insurers could pose a risk to Star Health's growth.
Star Health, leading private health insurer in the country, is owned by a consortium of investors like Westbridge Capital and Rakesh Jhunjhunwala. Incorporated in 2005, Star Health offers coverage options for retail health, group health, personal accidents and overseas travel insurance.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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