Star Health shares were under pressure on Wednesday after Citi initiated coverage on the Tamil Nadu-based health insurer with a 'sell' rating and a target price of Rs 670, which implies a downside of more than 14 percent in the stock from its closing price on Tuesday. Star Health's valuation does not fully price in the headwinds, according to Citi.
Shares of the company declined as much as 1.9 percent to Rs 740.5 apiece on BSE, extending losses to a second straight day.
According to the brokerage, the insurance company's robust back book — or existing premium-yielding policies — and large agency force warrant a premium valuation.
Other brokerages, however, are positive on the Star Health stock, suggesting an upside of up to 14 percent.
Citi valued the stock at 53 times its earnings per share (EPS) estimate for the year ending March 2024, citing the company's "formidable and entrenched distribution network with high customer stickiness and a predictable secular growth outlook".
Its target price to earnings multiple implied a 65 percent premium to ICICI General Insurance on the back of Star Health's inimitable distribution network, 90 percent retail mix offering secular growth and strong moats derived from its vintage and scale, according to a research report.
Star Health and Allied Insurance shares have given a return of 6.8 percent in the past one month, a period in which the Nifty50 benchmark has risen 1.3 percent.
Legendary investor
Rakesh Jhunjhunwala — who died
last month — and his wife Rekha Jhunjhunwala together held a 17.49 percent stake in the insurance company at the end of June.
