Rakesh Jhunjhunwala-backed Star Health gets 1st Buy rating after poor IPO, may gain 36%; check target price

Star Health and Allied Insurance Company share price could soar as much as 36% from current levels, said analysts at brokerage firm Emkay Global, initiating coverage on the stock with ‘buy’ rating. Rakesh Jhunjhunwala-backed Star Health can leverage its dominant position in the retail health insurance segment and grow stronger, Emkay said in the note. Star Health and Allied Insurance shares began trading on stock exchanges last week at a discount to the IPO price of Rs 900 apiece. In its short journey on Dalal Street, the stock has continued to fall, extending losses from issue price to nearly 8%. Currently, the stock trades at Rs 832 per share.

Valuation right?

“The company has one of the largest and well-spread distribution networks with 779 health insurance branches spread across 25 states and 5 union territories in India,” analysts at Emkay Global said. Valuations have been at the forefront of investor’s concerns recently but Emkay Global believes Star Health’s are “rightly anchored”. “We are of the view that investors should not be deterred by high valuations, which are rightfully anchored to Star Health’s nearly unassailable position in a high-growth industry,” they added. Emkay Global has set a target price of Rs 1,135 per share on Star Health and Allied Insurance.

Also Read: Rakesh Jhunjhunwala gains 421% on this stock, on which IPO investors lose 10%

Emkay Global’s Buy call on Star Health is backed by three factors. The first of these factors highlights that India’s health insurance industry is still in its infancy with potential to grow stronger. Secondly, Star Health’s dominant market share has been taken into consideration. The insurance firm’s market share is more than three times its nearest competitor. Lastly, analysts expect margin gains with scale.

IPO failed to attract investors

Start Health’s IPO had failed to attract investors when it opened on November 30 and closed on December 2. The Rs 7,249 crore public issue saw Qualified Institutional Buyers (QIB) bid for their portion 1.03 times while retail investors subscribed to their portion 1.10 times. Meanwhile, Non-Institutional Investors (NII) and employees of the firm all but skipped the IPO, subscribing their portion 0.19 and 0.10 times. The overall subscription for the IPO reached just 0.79 times. This had led Star Health to trim its issue size. 

The lack of interest from investors carried on to the listing day last week. Shares of Star Health opened 5% lower from the IPO price.The discounted listing of Star Health was also aided by the fear of Omicron Covid variant. 

Rakesh Jhunjhunwala’s investment in Star Health

Ace investor Rakesh Jhunjhunwala is a promoter in the company, owning a 14.98% stake in the private insurance company. Often touted as the Big Bull of domestic stock markets, Rakesh Jhunjhunwala did not sell or trim his stake in Star Health through the IPO. According to the RHP of Star Health, Rakesh Jhunjhunwala owns 8.28 crore shares of the company acquired at an average cost of Rs 155.28 per share. At the current price, the big bull has earned around 400% returns from his investment in Star Health and Allied Insurance.