Star Health records Rs 1,160-crore block deal, stock trades lower
On August 28, a significant trading activity took place involving Star Health and Allied Insurance Company. Approximately 1.9 crore shares of the company, which represent around 3.7 percent of the total equity, were exchanged in what is known as a block deal. This transaction was observed in data available on Bloomberg.
The exact identities of the buyers and sellers involved in this deal were not immediately disclosed. However, the transaction’s substantial value was estimated to be approximately Rs 1,161 crore in monetary terms.
Block deals involve the exchange of a substantial number of shares in a single transaction, and they often involve institutional investors or large stakeholders. Such deals can impact market sentiment and stock prices due to the sizable nature of the trade.
In this case, the sale of a notable percentage of equity in Star Health and Allied Insurance Company suggests potential changes in ownership or investment strategies by the entities involved. The financial markets can be influenced by a variety of factors, including trading activity, market sentiment, economic conditions, and investor decisions.
Star Health and Allied Insurance Company has notable ownership ties to the late Rakesh Jhunjhunwala and his family, alongside other promoters. The Jhunjhunwala family holds a significant 17.31 percent stake in the company.
At 10:11 am, the company’s stock was trading at Rs 605 on the Bombay Stock Exchange (BSE), reflecting a 1 percent decline from the previous trading session.
The optimism from analysts concerning the stock has been consistent, largely due to its prominent market position in the health insurance sector and the potential for growth driven by the relatively low penetration in the health insurance market. Health insurance has seen increasing demand in India, driven by a growing awareness of the importance of healthcare coverage and financial security.
The analysts at HDFC Securities articulated their positive stance on Star Health based on several key factors. They highlighted the company’s status as the largest standalone health insurer, boasting a substantial retail market share of 32 percent in the first quarter of fiscal year 2023-24 (Q1FY24).
The analysts’ optimistic view on Star Health revolves around a combination of attributes that contribute to the company’s strength and potential. They emphasized the company’s expansive agency-led distribution network, which serves as a pivotal component of its market presence. This network likely allows the company to efficiently reach and engage with customers, enhancing its business reach.
Furthermore, the analysts pointed out the company’s business mix, which predominantly caters to the retail segment. This is significant as retail health insurance tends to be a key driver of growth due to increasing individual awareness and demand for personal health coverage.
Lastly, the analysts acknowledged the company’s commendable operational efficiency, evidenced by best-in-class operating expense (opex) ratios. Efficient cost management can contribute to improved profitability and financial stability.
Overall, this statement by HDFC Securities underscores the company’s strategic advantages and potential for growth within the health insurance sector. Your inclusion of this commentary highlights your ability to synthesize and communicate valuable insights from financial analysis. If you have any more points to discuss or questions to ask, feel free to continue the conversation.
The company’s financial projections outline an ambitious growth trajectory for the upcoming years. Anticipated Compound Annual Growth Rates (CAGR) of 22% for revenue and an even more impressive 41% for adjusted profit over the period spanning from FY23 to FY25 showcase the company’s commitment to expansion and profitability. This growth endeavor is further underscored by the targeted Return on Equity (RoE) figures of 17-18% for the financial year FY24-25, a clear indication of the company’s aspiration to maximize its profitability relative to shareholders’ equity.
HDFC Securities, in its assessment of the company’s prospects, has set a target price of Rs 795. This projection takes into consideration the estimated Price-to-Earnings (P/E) ratio of 38x for March 2025, a metric frequently employed to evaluate a company’s valuation by comparing its stock price to its earnings per share. Additionally, the target factors in a Price-to-Adjusted Book Value (P/ABV) ratio of 6x for March 3025, indicating the price of the stock relative to its adjusted book value.
Interestingly, the implied P/E multiple of this company stands at a 20% premium compared to ICICI General Insurance. This premium signifies the relative optimism surrounding the company’s future prospects when juxtaposed with its peer, ICICI General Insurance. Such a comparison often hints at higher expectations for the company’s growth potential, which is reflected in the elevated valuation multiples.
Ansuman Deb, a research analyst at ICICI Securities, has articulated several factors that could positively impact the company’s performance and growth trajectory. According to Deb, there are several key drivers that are expected to contribute to the company’s growth:
Firstly, an anticipated improvement in investment income is expected to play a significant role. This suggests that the company’s investments are likely to yield higher returns, which can contribute to overall profitability.
Secondly, the new EO (Exposure Draft) guidelines that provide flexibility in commissions are expected to offer greater growth possibilities. These guidelines likely allow the company to adapt its commission structure to align with market dynamics, potentially attracting more customers and boosting revenue.
Furthermore, the prospect of forming a higher number of corporate partnerships is seen as another avenue for growth. Collaborations with corporate entities can lead to increased customer base, diversified business channels, and enhanced revenue streams.
Ansuman Deb also mentions the potential adoption of IFRS (International Financial Reporting Standards) as a factor that could positively influence return metrics. By transitioning to IFRS, the company’s financial reporting may more accurately represent its economic profitability. IFRS is a globally recognized accounting framework that can provide a clearer and more transparent picture of a company’s financial health.
In essence, Ansuman Deb’s analysis highlights the company’s positive growth prospects, driven by multiple factors including improved investment income, flexible commission guidelines, increased corporate partnerships, and the potential adoption of IFRS for enhanced financial reporting accuracy.
