Synopsis: Jefferies has retained a Buy rating on Star Health with a target price of Rs 660, implying about 46% upside. The brokerage believes the stock’s 18x FY27E PE does not fully reflect its expected 21% IFRS EPS CAGR, with pricing, underwriting and operational levers supporting further rerating potential ahead.
Star Health is again in the limelight as Jefferies reiterated their ‘Buy’ recommendation for the company’s shares. They also stated that the shares may be considered undervalued at current price levels. Jefferies expects a gain of nearly 46% to their target price of Rs 660 for the company’s shares. They stated that the valuation of the company does not completely reflect the growth in earnings that is expected.
With a market cap of Rs 26,263 crore, the shares of Star Health & Allied Insurance Company Ltd are trading at Rs 445 and are trading at a PE of 59 compared to their industry PE of 31.4. The shares have given a return of about 24% in the last year.
Why Jefferies sees value in Star Health
Jefferies has retained a ‘Buy’ rating on Star Health with a target price of Rs 660, indicating an upside potential of almost 46 per cent from current levels. The brokerage firm’s assessment indicates that the current fall in the stock may have provided investors with an opportunity to invest in the insurance sector. The brokerage firm’s positive assessment comes at a time when the stock is being closely observed in terms of growth, pricing, and claims in the health insurance business.
One of the reasons behind Jefferies’ positive assessment of Star Health is the valuation aspect. The brokerage firm has pointed out that Star Health is trading at 18 times FY27E PE, which is not entirely reflecting the company’s expected earnings growth. The brokerage firm has pointed out that the company is expected to report an IFRS EPS CAGR of 21 per cent over the next three years, which is FY26 to FY28E, indicating that the stock is undervalued in terms of the company’s expected earnings growth.
The brokerage firm also observed that the loss ratio is an important monitorable, but the feedback from the management has been positive. Star Health has also observed that the loss ratio is expected to increase in the coming FY28, driven by the increase in prices, which has resumed, and underwriting. The brokerage firm has observed that there will be a 200-basis-point increase in the loss ratio in FY25-28E.
In addition to pricing and underwriting, Jefferies has also observed other levers which can be beneficial for the company in the coming days. These levers include claim automation, hospital partnerships, and the Public Insurance Registry. The brokerage firm has observed that these factors have not been completely captured in its estimates, which means there can be further upside.
On an overall basis, the thesis that Jefferies presents is that the valuation at which Star Health is currently trading appears reasonable when viewed in the context of the earnings growth potential and potential margin improvement. This is the reason they present that the current stock price has room to move up by virtue of the fact that the current 18x FY27E PE leaves room for a rerating.
Financials
The revenue from operations for the company stood at Rs 4,566 crore in Q3 FY26 compared to the Q3 FY25 revenue of Rs 4,146 crore, up by about 9 per cent YoY. However, the net profit stood at Rs 128 crore in Q3 FY26, down compared to the Rs 215 crore profit in Q3 FY25.
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