Emkay Global Financial Recommends Buying Star Health, Sets Price Target at Rs 650

Emkay Global Financial Maintains Buy Rating on Star Health with Increased Target Price

Star Health reported a solid performance in Q4, with significant improvements in its claims ratio and combined ratio. The claims ratio improved by 440 basis points (bps) year-over-year (YoY) to 64.8%, while the combined ratio improved to 94.8%. This consistent improvement in the claims ratio over recent quarters can be attributed to multiple factors, including strong growth in fresh premiums, annual price hikes, portfolio calibration, wellness and homecare initiatives, and fraud prevention measures.

The management remains confident of continued improvement in the claims ratios, driven by annual price hikes, growth in fresh premiums, and measures taken over the last few quarters. While the focus remains on profitability, the management aims to achieve premium growth in the high-teens and return on equity (RoE) in the mid-to-high-teens range. To incorporate the Q4 developments, Emkay Global Financial has increased its gross written premium (GWP) estimates by approximately 2% and cut combined ratio (CoR) estimates by 70-90 bps, resulting in a 6-8% increase in profit after tax (PAT) over FY27-28E.

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As a result of the improved outlook, Emkay Global Financial maintains a BUY rating on Star Health and increases its target price by approximately 24% to Rs. 650 from Rs. 525 (implying a FY28E price-to-earnings ratio of 30x), driven by the consistent improvement in the claims ratio and a focus on profitable growth.