Star Health: Not in the superficial race for topline growth

15 Feb 2024 , 01:44 PM

Analysts of IIFL Capital Services hosted the management of Star Health (STAR) at IIFL’s Investor Conference in Mumbai. STAR’s slightly lower than market GDPI growth of 18% during YTDFY24 is largely by choice and design, as the Company continues to remain focused on generating quality business which makes sense from a combined ratio perspective. Management stated that STAR is not part of the superficial race for topline growth, which can be pretty convenient for STAR given its benefit on the EOM compliance front coupled with its strong distribution architecture. The broad objective of STAR is to create a sustainable business model with a 20% premium growth coupled with 20% ROE (in IFRS terms), implying a 93%-95% combined ratio aspiration. Analysts of IIFL Capital Services continue to forecast 18%/25% GDPI/EPS Cagr over FY24-26. They see STAR as a strong compounding story and it is attractively trading at 28X/24X on FY25/26 P/E. Maintain BUY. 

In-house claims management enhances fraud detection: 

STAR continues to remain focused on the customer experience front. Tangibles in the form of strong agent addition, growth in the digital business, continued additions of banks and other corporate agents, and best-in-class renewal ratios at 98% (in terms of value) speaks of STAR’s success on the customer service front. One of the biggest moats for STAR is its in-house grown TPA, which provides significant cost benefits (1% of premiums) and also valuable data facilitating product design and development. Internal claims management and years of data facilitates better fraud detection. 

Sustainable 20% business growth aspired; focus on PA and Travel: 

STAR continues to remain sensitive on the combined ratio front, and is focused on sustainable and profitable business growth. STAR identifies PA and Travel as good opportunities for business growth. PA will be further amplified by the recent corporate agency tie-ups, while investments have been made into a dedicated team for the travel segment. 

Other Takeaways: 

1) STAR remains focused on training its agency force, so that the customer can be better educated on the policy coverage, as currently ignorance is being identified as misselling. 2) On a full year basis, management expects FY24 combined ratio to be lower than 9MFY24 as Q4 is generally is a favourable quarter from a loss ratio perspective.