Star Health and Allied Insurance Co. Ltd. has entered the second half of FY26 with renewed operating momentum, prompting Geojit Financial Services to upgrade the stock to “Accumulate” with a revised target price of Rs. 510, implying an upside of approximately 13% from the current market price of Rs. 452. The upgrade is anchored in improving underwriting discipline, sustained retail demand, accelerating digital penetration, and structural tailwinds emerging from recent GST rationalisation in healthcare costs.

Star Health: A Health Insurer Recalibrating for Sustainable Profitability

Star Health’s Q2FY26 performance reflects a company in the middle of a strategic reset rather than a cyclical slowdown. While headline profitability weakened, core underwriting metrics improved materially. Net premium earned rose at a double-digit pace, underwriting losses narrowed sharply, and retail demand remained resilient despite macro headwinds. Management’s emphasis on portfolio repricing, AI-driven fraud analytics, and digital distribution is beginning to deliver measurable cost efficiencies. Meanwhile, GST reductions on pharmaceuticals and lifesaving drugs are expected to structurally lower claim severity, creating margin headroom in H2FY26 and beyond. Geojit believes these factors justify a higher valuation multiple, despite near-term earnings volatility.

Retail-Led Premium Growth Underscores Franchise Strength

Star Health reported Gross Written Premium of Rs. 4,424 crore in Q2FY26, marking a modest 1.2% YoY increase, but the headline number masks a far stronger retail performance. Retail GWP surged 17% YoY, supported by improved renewal persistency of 98% versus 94% a year earlier and a sharp 47% YoY expansion in digital business.

The company now covers over 1.3 crore lives, up from 1.2 crore last year, reinforcing its dominant position as India’s largest standalone health insurer with a hospital network exceeding 14,340 facilities. The pivot toward retail and digital channels has also reduced volatility associated with corporate and group portfolios, which have historically delivered weaker margins.

Underwriting Discipline Drives Sharp Reduction in Losses

Underwriting losses narrowed dramatically to Rs. 27 crore in H1FY26, compared with Rs. 149 crore in H1FY25. This improvement was driven by multiple structural interventions rather than one-off adjustments.

Management cited portfolio recalibration, annual repricing, lower medical frequency, and the deployment of AI-enabled fraud detection systems as key contributors. The AI-ML platform alone delivered approximately 35% cost savings by reducing false claims and improving claim accuracy. These initiatives also helped bring the combined ratio down to 100.3%, from 102.1% a year earlier, signalling a return toward underwriting breakeven.

Profitability Impacted by Investment Income, Not Core Operations

Reported PAT declined 50.7% YoY to Rs. 55 crore in Q2FY26, primarily due to a 21% YoY decline in investment income and elevated operating expenses linked to growth investments. Importantly, this earnings pressure was not driven by deterioration in insurance fundamentals.

Net premium earned rose 10.2% YoY to Rs. 4,081 crore, while total operating income increased 9% YoY. Expense ratios improved to 29.7% in H1FY26, down from 31.1% last year, reflecting productivity gains and technology-led efficiencies. Geojit views the earnings dip as transitional rather than structural.

Distribution Mix Shifts Toward Higher-Quality Channels

Agency-led distribution remains the backbone of Star Health’s growth, contributing 82.7% of GWP, with fresh agency business growing 20% YoY. Digital channels, while smaller in absolute terms, expanded at a rapid 47% YoY, now contributing nearly 9% of total GWP.

In contrast, bancassurance declined 14% YoY, while corporate GWP fell sharply as the company deliberately exited loss-making segments. This strategic shift has improved risk quality, reduced claims volatility, and strengthened long-term profitability, even at the cost of near-term volume growth.

GST Rationalisation Emerges as a Structural Margin Tailwind

The reduction in GST on pharmacy bills to 5% and on lifesaving drugs to 0% is expected to significantly lower healthcare costs across India. For Star Health, this translates into reduced claim severity, enhanced policy affordability, and improved customer retention.

Management has already reported a 50% YoY surge in fresh business in October 2025, immediately following the GST revision. Geojit believes this regulatory change will act as a durable demand catalyst, particularly in retail health insurance, where pricing sensitivity is high.

Balance Sheet Strength and Solvency Provide Strategic Flexibility

Star Health’s solvency ratio stood at a robust 2.15x in H1FY26, well above regulatory requirements and providing ample buffer for growth. Book value per share is expected to rise from Rs. 119 in FY25 to Rs. 150 by FY27, supported by improving profitability and retained earnings.

The insurer’s capital adequacy enables continued investment in technology, rural expansion, and wellness-linked healthcare offerings without compromising balance-sheet stability. This financial resilience underpins Geojit’s confidence in the company’s long-term strategy.

Valuation Rationale and Investment Levels

Geojit has valued Star Health at 3.4x FY27E BVPS, arriving at a target price of Rs. 510. While near-term earnings multiples appear elevated, the brokerage argues that improving return ratios, better cost control, and structural demand tailwinds justify premium valuation.

Key Investment Levels

Current Market Price (CMP): Rs. 452
Target Price (12 months): Rs. 510
Upside Potential: ~13%
Recommendation: Accumulate on dips

Outlook: A Health Insurer Transitioning from Scale to Quality

Star Health’s near-term financials may continue to reflect volatility, but the underlying business is becoming structurally stronger. Improved underwriting discipline, accelerating digital adoption, favourable regulatory changes, and a cleaner portfolio mix position the company for sustained earnings recovery over FY26–FY27.

From an investor’s perspective, the stock represents a measured accumulation opportunity rather than a momentum trade. The transformation underway is incremental, but the direction is clear: Star Health is moving decisively from growth at any cost to growth with profitability.