Stock Check: Down over 40% from the IPO price, should you buy Star Health now? Here’s what experts say

Since their tepid debut in December 2021, shares of Star Health & Allied Insurance have continued to underperform, failing to reach their IPO price of ₹900. As of the close on May 22, the stock remains significantly below this benchmark, trading at ₹539.30 — over 40 percent lower than its initial offering price.

Star Health was listed at ₹845.00 on December 10, 2021, marking a 6.11 percent discount from its offer price. On the same day, the stock briefly reached a high of ₹940, the only time it surpassed its IPO price.

The stock has continued its weak performance, down over 9 percent in the last one year and completely flat in 2024 YTD. It has fallen almost 3 percent in May so far after a 4.7 percent gain in April. However, it lost around 3 percent in March and February each. It rose over 8 percent in January of this year.

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Currently, the stock is over 20 percent away from its 52-week high of ₹674.95, hit on September 11, 2023; and 42.6 percent away from its record high of ₹940, hit on listing day, December 10, 2021. Still, it is 13 percent above its 52-week low of ₹477, hit on March 1, 2024.

Earnings

In the quarter ending March 2024 (Q4FY24), Star Health reported a net profit increase of 40%, reaching ₹142.3 crore compared to ₹101.8 crore in the same quarter the previous year.

The company's net premium earned rose by 16.6% to ₹3,395.3 crore, up from ₹2,912.5 crore in Q4FY23.

However, its underwriting loss widened to ₹91 crore from ₹65.4 crore in the same period last year. The combined ratio (COR) improved to 92.77% from 97.83% year-on-year (YoY), indicating better operational performance.

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Despite these mixed results, the management remains optimistic, expecting the retail health insurance industry to grow in the mid-teens and aims to exceed this growth rate.

Can the company recover strongly in the future? Here’s what technical and fundamental experts predict.

Technical View

Om Mehra, Technical Analyst, SAMCO Securities

Star Health is currently trading at Rs.540. Since January 2023, the stock has traded within a defined range of 500-675. This clearly shows that the stock remains in the accumulation zone. The Relative Strength Index (RSI) remains below the neutral level of 50, and the stock is positioned below the 50-day and 20-day moving averages (DMA). Over the last month, the delivery volume has decreased by 8.97%, signaling reduced market activity. The immediate support level stands at ₹520; a breach of this level could potentially lead to a test of the ₹500 mark. On the upside, crossing the Rs.560 level is crucial for a bullish outlook, and investors are advised to await the confirmation above the ₹560 level before considering further positions.

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Rajesh Palviya, SVP - Technical and Derivatives Research, Axis Securities

Since Sept 2021, the stock has continued consolidating in a Triangular formation (750-500), indicating substantial consolidation. Huge volumes in this consolidation range signify accumulation near the major support zone of 510-500 levels. With the current price action, the stock is poised for either side breakout (upper band 600 and lower Band 510). Hence, any either side breakout may indicate further direction. The crucial moving averages like the 20, 50, 100, and 200-day SMA have turned flat, supporting a sideways trend. Traders and Investors are advised to follow a strict stop loss range around 510-500 levels; any violation of this range may cause further weakness. On the other hand, if the stock decisively breaks the 590-600 levels, then a short-term trend reversal may take place, which will cause an upside towards the 650-700 levels.

Pravesh Gour, Senior Technical Analyst, Swastika Investmart

On the weekly chart, from the date of listing, it has continuously formed lower highs and lower lows. However, it has formed a strong base near its all-time low at ₹450–455. The structure of the counter is not so lucrative, but if anyone wants to take a position at current levels, then they will take a position at LTP 540 with SL 450 for the target of ₹674/780.

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Fundamental View

BofA: The brokerage has a ‘buy’ call on the stock with a target price of ₹715, implying a potential upside of over 32 percent.

The brokerage is bullish on Star Health, citing several compelling factors. The company has a robust track record of market share gains and benefits from a dominant agency network. It leads the market in product innovation and boasts a diversified portfolio, along with an extensive network of partnered hospitals. The health insurance industry itself has a strong growth outlook, driven by low penetration rates. Additionally, despite its premium multiple, Star Health offers attractive valuations due to its strong earnings growth trajectory.

“We value Star Health at ₹715 per share based on FY26E P/E of 30x. While this is at a premium to listed peers, we believe this is justified given its strong gross written premium (GWP) growth, which is far higher than any of its listed peers; higher earnings growth potential,” BoFA said.

Downside risks, as per the brokerage, include attrition of trained sales personnel; and failure to develop and maintain satisfactory relationships with agreed network hospitals.

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Motilal Oswal: The brokerage also has a ‘buy’ call on Star Health with a target price of ₹730, indicating an over 35 percent upside.

As per the brokerage, Star Health has tightened its underwriting standards to focus on high-quality business. It remains optimistic about the overall prospects for Star Health, backed by strong growth in retail health, given its under-penetration; strong push from the Banca channel; sustained growth in specialised products; and deepening presence. However, MOSL expects Star Health to increase prices by 15-20 percent in Q1FY25 for senior citizen health insurance products and Young Star insurance products.

“Given the long-term growth potential for the industry, along with investments by Star Health in profitable channels and products, we reiterate our ‘Buy’ rating on the stock with a TP of ₹730, based on 30x FY26E EPS," it said.

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CLSA: The brokerage also has a ‘buy’ call on the stock with a target price of ₹700, indicating an upside of almost 30 percent.

Despite a challenging FY24, CLSA noted that Star Health's emphasis on the agency channel and low-cost distributors is promising. The company plans to implement a price hike of 15-25% on two products that constitute approximately 10% of its gross premiums. Analysts believe this move will support stronger financial performance. Consequently, CLSA now expects Star Health to achieve a Return on Equity (RoE) of 17-18% over FY25-26. Key factors to watch will be the company's ability to maintain a steady market share and improve its loss ratio.

Emkay: The brokerage has a 'reduce' call on the stock but raised its target price to ₹525 from ₹500 earlier. The new target price implies a marginal downside in the stock.

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According to the brokerage, volume-led premium growth amid stable medical inflation is necessary to revise their view on the stock. Reflecting on Q4FY24 developments, they have adjusted their FY25-26 estimates, resulting in a 0.2-0.3 percentage point increase in loss ratios and a minor rise in the Combined Operating Ratio (CoR). This leads to a 1-3% reduction in underwriting profits and a 2% cut in Profit After Tax (PAT). 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.