With two buy calls in a week, this Jhunjhunwala stock likely to rise 23% in a year

Shares of Rakesh Jhunjhunwala-backed Star Health and Allied Insurance Company were assigned buy calls by two leading brokerages within a week. Jhunjhunwala and his wife Rekha are the second-largest shareholders in the company with an 18.21 per cent stake. Safecrop Investments India LLP is the biggest shareholder with 47.77 per cent stake.

ICICI Direct initiated coverage on the stock on March 22 and gave a buy call with a target price of Rs 800, an upside of 23 per cent against the current market price of Rs 648.

Financial services firm Motilal Oswal initiated its coverage on the share with a buy call on March 16. It gave a target price of Rs 750, 23 percent higher than the market price of Rs 609.

ICICI Direct cited the following triggers behind the target price of Rs 800.

Star Health is a market leader in retail health insurance, with market share in retail GDPI at 31.3 per cent.

It is the largest agency channel with 5.3 lakh agents who form a pillar to drive 77 per cent of business. Focus on agency channel coupled with strategic tie-ups with digital ecosystem partners to enable pedalling healthy growth in premium, ICICI Direct said.

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"Star Health has consistently delivered combined ratio at 93-95 per cent in FY16-20. Covid led to higher claims resulting in under writing loss, which, we believe, will normalise from FY23E onwards. Strong underwriting, tie-up with hospitals will restrict claims while focus on operating expenditure (through in-house claim settlement and gradual improvement in efficiency) is seen boosting profitability and return ratios ahead," said ICICI Direct.

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The brokerage said premium growth at 23-24 per cent compounded annual growth rate (CAGR) and focus on underwriting profit is expected to keep return on equity ahead of peers. We initiate coverage on the stock with a BUY rating, it added.

Meanwhile, the stock rose 1.62 per cent intraday at Rs 665 against the previous close of Rs 654.35 on BSE. Total 0.11 lakh shares of the firm changed hands amounting to a turnover of Rs 71.86 lakh on BSE.

Market cap of the firm rose to Rs 37,926 crore. Later,  the stock closed 0.71 per cent higher at Rs 659 on BSE.

Last week, Motilal Oswal said, "Star Health is the market leader in the Indian health insurance industry, with retail market share of 31 per cent. It is poised to grow at a relatively faster pace vis-a-vis the overall health insurance industry."

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"Going ahead, we expect Star to report a gross premium CAGR of 25 per cent over FY21- 24E, going from loss of Rs 8.3 billion in FY21 to PAT of Rs 10.8 billion in FY24E. At 32.5x FY24E P/E, we find the valuations reasonable. We value the company at 40x FY24E EPS to arrive at fair value of Rs 750," the financial services firm added.

The stock made a tepid market debut in 2021.

Shares of Star Health listed at a discount of over 6 per cent to the issue price on December 10,2021. The firm made its debut at Rs 845 per share (down 6.11 per cent) on the NSE against the IPO issue price of Rs 900.The company offered its shares in a price band of Rs 870-900 per share. On BSE, the stock listed at Rs 848.80, 5.68 per cent lower to the IPO price.

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