Star Health Insurance Share Price Target at Rs 475: YES Securities
Star Health and Allied Insurance has drawn renewed attention from market participants following its Q4 FY25 earnings release and forward-looking commentary. In a detailed coverage update dated April 30, 2025, YES Securities maintained its BUY recommendation on the insurer, raising the target price to Rs 475, representing a 21% upside from its last traded price of Rs 393. While the FY25 performance reflected notable strain on claims and profitability, analysts anticipate directional improvement driven by pricing corrections, operational efficiencies, and strategic channel expansion. Star Health’s commanding market share in the retail health segment and its aggressive investment in digital distribution stand out as its strongest levers going forward.
Premium Growth Adjusted for Accounting Effects Shows Healthy Momentum
On a reported basis, gross written premiums (GWP) for Q4 FY25 rose by 3.4% YoY and 35.3% QoQ to Rs 51,380 million. However, once adjusted for 1/n accounting methodology, the effective GWP growth stood at a robust 13% YoY. For the full fiscal year, GWP grew 10% including accounting impacts, while excluding them it came in at 15% YoY. Notably, fresh GWP surged 22% YoY, while renewal GWP climbed 12.5%.
Claims Ratio Worsens But Path to Recovery Is Clear
FY25 saw the claims ratio deteriorate to 70.3%, up from 66.5% in FY24, owing to a rise in both frequency and severity of claims. This increase is attributed to greater surgical interventions and more frequent hospitalizations, particularly in oncology, gynecology, and neurology. Encouragingly, management is witnessing early signs of loss ratio improvement in new cohorts and expects sequential progress going forward, aided by digitization of hospital billing and claims system transformation due in Q2 FY26.
Segmental Loss Dynamics Point to Selective Group Business Recalibration
The retail segment posted a loss ratio of 68.8%, while group business soared to an unsustainable 89.8% in FY25. As a mitigation measure, the contribution of the group business to total GWP was brought down to 7% in Q4 from 9% in Q2. This strategic pullback is likely to help stabilize overall profitability.
Expense Ratio Trends and Technology Investments
Operating efficiencies improved modestly with the FY25 expense ratio at 30.8% (29.9% on a normalized basis) versus 30.2% in FY24. YES Securities believes further gains can be realized through ongoing digital investments and micro-market segmentation. With over 50% of hospital billing now digitized, Star Health is well positioned to combat fraud and improve turnaround times.
Underwriting Loss a Key Drag in FY25
Star Health reported an underwriting loss of Rs 3,785 million for FY25, sharply wider than the Rs 893 million loss in FY24. Despite solid revenue growth, higher claims outgo and increased commissions curtailed profitability. However, this is expected to improve in FY26 and FY27, with projected underwriting losses shrinking significantly.
Investment Portfolio Shows Resilience
The investment income grew to Rs 12.8 billion in FY25, up from Rs 10.8 billion in FY24, despite a decline in profit booking in Q4. The allocation to equities within the company’s asset base grew from 6.7% to 15% YoY, as solvency ratios remained healthy at 2.21x, well above regulatory thresholds.
Channel Mix Strategy Reflects Strong Execution
Below is the contribution of fresh GWP by channel (FY25, without 1/n impact):
| Channel | YoY Growth | Share in Fresh GWP |
|---|---|---|
| Agency | +16% | 61% |
| Banca | +13% | 15% |
| Corporate | +21% | 7% |
| Digital | +71% | 17% |
Agency channel remains dominant, contributing 82% to overall business with an agent base of 775,000, which is expected to grow to 1 million in the next three years.
Product Innovation Drives Retail Penetration
The recently launched 'Super Star' product crossed Rs 5.5 billion in premium collections in FY25. This offering, packed with features such as 'freeze your age' and 'limitless care,' has rapidly become a top seller, particularly across digital platforms. Star Health retained a 33% market share in the retail health insurance segment.
Net Promoter Score Shows Service Quality Gains
NPS improved to 54 in FY25 from 42 in FY24, driven by faster claims turnaround and pre-authorization automation. Claims-specific NPS rose to 55, underlining improved customer experience through digital transformation.
Financial Highlights at a Glance
| Metrics | FY25 | FY26E | FY27E |
|---|---|---|---|
| Net Earned Premium (Rs mn) | 148,222 | 168,996 | 197,726 |
| PAT (Rs mn) | 6,396 | 9,085 | 11,611 |
| EPS (Rs) | 10.9 | 15.5 | 19.8 |
| RoE (%) | 9.4% | 12.1% | 13.6% |
Valuation and Stock Outlook
YES Securities values Star Health at 24x FY27E EPS of Rs 19.8, implying a target price of Rs 475. At this level, the implied P/B stands at 3.1x, factoring in expected RoE expansion to 13.6% by FY27. With the stock currently trading at a P/E of 36.1x FY25, there’s evident room for rerating, provided claims normalization and margin improvement materialize as expected.
Conclusion: Strategic Reset Underway, Long-Term Story Intact
Despite near-term profitability pressures, YES Securities maintains a bullish stance on Star Health. The combination of channel innovation, product leadership, and claims system revamp positions the company to rebound in FY26 and FY27. As India’s largest retail health insurer, Star Health remains a structural bet on long-term sectoral tailwinds like rising health awareness, regulatory clarity, and insurance penetration.
Recommendation: BUY
Target Price: Rs 475
Upside Potential: +21%
Investors with a medium- to long-term view may consider accumulating the stock, while keeping a close watch on claims trajectory and underwriting performance in the upcoming quarters.
