This Rekha Jhunjhunwala portfolio stock nears record low; down 29% in 2 mth

Star Health and Allied Insurance Company shares hit a 52-week low of Rs 463, down 4% in intra-day deal and trading near its all-time low of Rs 451.10 hit on January 30, 2023.

Star Health share price: Star Health and Allied Insurance Company shares continued their downward trend, hitting a 52-week low of Rs 463, falling 4 per cent on the BSE in Monday’s intra-day trade in an otherwise firm market. 

 

The fall in the share price came on the back of weak earnings in the second quarte-ended September 2024 (Q2FY25). 

 

The stock of the general insurance company has fallen below its previous low of Rs 473 touched on November 5, 2024. The market price of Rekha Jhujhunwala-owned company is inching towards its all-time low of Rs 451.10 hit on January 30, 2023. In two months, it tanked 29 per cent from its 52-week high level of Rs 647.65 touched on September 9, 2024.

 

 

Rekha Rakesh Jhunjhunwala and Rakesh Radheshyam Jhunjhunwala, the promoter duo owned 100.75 million equity shares or 17.2 per cent stake in Star Health Insurance at the end of the recent quarter, the shareholding pattern data shows.

 

In the past two weeks, the stock has declined 15 per cent after the company reported a 11.18 per cent year-on-year (Y-o-Y) decline in its consolidated net profit to Rs 111.29 crore as compared to Rs 125.3 crore a year ago. Gross Written Premium (GWP) increased 17 per cent Y-o-Y to Rs 4,371 crore. The combined ratio (CoR) for Q2FY25 stood at 103 per cent versus 99.2 per cent in Q2FY24. The claims ratio stood at 72.8 per cent against 68.7 per cent in a year ago.

 

Basis the combination of ABCD growth engine and 3 competitive moats, which are cost leadership, paralleled distribution network and superior in-house claim servicing, the company’s management said they are confident of achieving their aspiration of GWP Rs 30,000 crore and tripling PAT to Rs 2,500 crore by financial year 2028.

 

According to Motilal Oswal Financial Services, in Q2FY25, claims ratio increased owing to a seasonal impact in Q2 because of the extended monsoon, 10 per cent increase in severity, 6 per cent increase in frequency led by a jump in medical claims, higher reinsurance business taken last year, and a rising share in the group business.

 

The price corrections, investments in wellness initiatives, and hospital network management will help in keeping the loss ratio under control. The management is confident about achieving the guided 50bp improvement in opex ratio; however, improvement in claims ratio will be uncertain due to elevated claims and medical inflation, the brokerage firm said and reiterates ‘Buy’ rating with a target price of Rs 630 (based on 26x Sep’26E EPS).

 

Within COR, opex was in line with guidance with EOM (Expenses of Management) to NWP (Net Written Premiums) at 30.3 per cent, while Claims Ratio surprised negatively at 72.8 per cent. Star Health management attributed higher claims to a combination of higher incidence (chance of a person getting admitted and seeking insurance) and higher severity (higher costs once admitted). This in turn was led by erratic monsoons, which started at the end of Q1 and continued onto October, with Q2 bearing the maximum impact. As awareness of monsoon illnesses rises, people have a higher propensity to get admitted for treatment, analysts at JM Financial Institutional Securities said in the result update.

 

While Star is spending aggressively on tele-medicine to arrest this tendency, behavioural change will only be gradual. The company had undertaken a blended price increase of c.10 per cent in 12 per cent of its portfolio in H125 and was planning a similar price hike in H2. However, given the higher claims, management is now planning to take 10 per cent price hikes in 50 per cent plus of its portfolio in 2H25. This should help bring down Claims Ratio over FY26-FY27, as the revised premiums are progressively earned, the brokerage firm said.

 

“We saw Star Health bounce back sharply post-Covid to report a 95.3 per cent COR in FY23 and with price hikes already taken and more planned, see the company bounce back by Q4FY25-26. We maintain our positive stance on the company – maintain ‘Buy’ with an unchanged target price of Rs 750, valuing the company at 35x FY26e EPS of Rs 21.5,” analysts said.