Stock Check: Star Health Down Over 40% from IPO Price—Is It a Buy Now?

Star Health was listed at ₹845.00 on December 10, 2021, which was 6.11% below its offer price. On the same day, the stock briefly peaked at ₹940, the only time it surpassed its IPO price. Since then, the stock has struggled.

Over the past year, Star Health’s stock is down over 9% and has remained flat in 2024. In May, the stock has dropped almost 3%, following a 4.7% gain in April. It also saw a 3% decline in both March and February but rose over 8% in January.

Currently, the stock is trading more than 20% below its 52-week high of ₹674.95, reached on September 11, 2023, and is 42.6% below its record high of ₹940, set on its listing day. However, it is still 13% above its 52-week low of ₹477, hit on March 1, 2024.

Earnings

For the quarter ending in 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, indicating better operational performance.

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 at SAMCO Securities, shares his insights:

• Current Trading: Star Health is currently trading at ₹540. Since January 2023, the stock has been moving within a range of 500-675, indicating it is in an accumulation zone.
• Technical Indicators: The Relative Strength Index (RSI) is below the neutral level of 50, and the stock is positioned below the 50-day and 20-day moving averages (DMA). In the last month, delivery volume decreased by 8.97%, showing reduced market activity.
• Support and Resistance: The immediate support level is ₹520. If the stock falls below this, it could test the ₹500 mark. For a positive outlook, the stock needs to break above ₹560. Investors should wait for confirmation above this level before considering further positions.

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

Since September 2021, Star Health’s stock has been moving within a triangular pattern between ₹750 and ₹500, showing a period of consolidation. Large trading volumes in this range suggest that investors are accumulating shares near the support levels of ₹510-₹500. The stock is poised for a breakout, either above ₹600 or below ₹510. Key moving averages (20, 50, 100, and 200-day) have flattened, indicating a sideways trend. Traders and investors should use a strict stop loss around ₹510-₹500 to prevent further losses. If the stock breaks above ₹590-₹600, it could lead to a short-term rally towards ₹650-₹700.

Pravesh Gour, Senior Technical Analyst, Swastika Investmart

Since listing, the stock has consistently formed lower highs and lower lows on the weekly chart. However, it has found strong support near its all-time low of ₹450-₹455. The stock’s current structure is not very appealing, but for those wanting to invest now, they should consider entering at ₹540 with a stop loss at ₹450 and aim for a target of ₹674/₹780.

Fundamental View

BofA: Buy – Target Price ₹715 (32% Upside)

BofA is positive on Star Health due to its strong market share, extensive agency network, product innovation, and a wide range of partnered hospitals. They see the health insurance sector growing strongly due to low penetration rates. Despite a premium valuation, Star Health’s strong earnings growth makes it attractive. They value the stock at ₹715 per share based on a FY26E P/E of 30x, reflecting its higher gross written premium (GWP) growth and earnings potential compared to peers. Risks include losing trained sales staff and maintaining relationships with network hospitals.

Motilal Oswal: Buy – Target Price ₹730 (35% Upside)

Motilal Oswal notes that Star Health has tightened its underwriting standards to focus on high-quality business. They are optimistic about Star Health’s prospects due to growth in retail health insurance, channel expansion, and new products. They expect a price increase of 15-20% in Q1FY25 for senior citizen and Young Star insurance products. They maintain a buy rating with a target price of ₹730 based on 30x FY26E EPS, citing long-term growth potential and strategic investments.

CLSA: Buy – Target Price ₹700 (30% Upside)

CLSA believes that despite challenges in FY24, Star Health’s focus on the agency channel and low-cost distributors is promising. The company plans to raise prices by 15-25% on products that make up about 10% of its gross premiums, which should improve financial performance. They expect a return on equity (RoE) of 17-18% over FY25-26. Key factors to watch include maintaining market share and improving loss ratios.

Emkay: Reduce – Target Price ₹525 (Marginal Downside)

Emkay suggests reducing positions in the stock, although they have raised the target price to ₹525 from ₹500. They believe volume-led premium growth with stable medical inflation is needed to revise their view positively. Following Q4FY24, they adjusted their FY25-26 estimates, leading to slight increases in loss ratios and combined operating ratio (CoR), resulting in minor reductions in underwriting profits and profit after tax (PAT).