Motilal Oswal has suggested a BUY recommendation on insurance major Star Health, affirming its robust fundamentals and forecasting a steady improvement in profitability. This research update delves into the insurer’s Q1 FY26 performance, tactical shifts in the premium mix, key financial dynamics, and management outlook. Despite some short-term yield headwinds, the brokerage underlines Star Health’s sector leadership in retail insurance, stable solvency, and promising forward trajectory.

Star Health’s Investment Case Reinforced by Motilal Oswal

Motilal Oswal retains a bullish stance on Star Health, reiterating its BUY rating and pegging a 12-month target price at Rs520—implying a 16% upside from the current price. The report highlights in-line underwriting performance during Q1 FY26, resilient premium growth, and effective cost management. Despite a lower investment yield that temporarily impacted net profit, the management’s strategic agility and increased equity allocation signal long-term improvement in returns. Star Health’s disciplined pricing, solid retail franchise, and best-in-class persistency are key reasons for the optimistic investment outlook.

Star Health Gets Motilal Oswal’s BUY Endorsement

Motilal Oswal’s analysts reaffirmed a BUY recommendation on Star Health, underscoring its intrinsic value and sector dominance. The firm set a target price of Rs520, suggesting a 16% upside from the current market price of Rs448. This expectation is supported by valuation at 29 times the projected FY27 earnings per share, with continued leadership in India’s retail health insurance segment driving confidence in the outlook.

Premium Momentum Sustained Amid Strategic Adjustments

Q1 FY26 net earned premium climbed 12% year over year to Rs39.4 billion, reflecting Star Health’s inherent growth momentum. The company reported a total gross written premium of Rs36.1 billion—a modest 4% annual increase—primarily driven by retail health, which surged 9%. This robust retail growth counterbalanced a staggering 48% drop in group health premiums, emblematic of a deliberate portfolio recalibration to sharpen focus on more profitable segments.

Profitability Impacted by Investment Yield, Yet Underwriting Remains Sound

While investment income was flat year over year, declining yields constrained profit after tax (PAT), resulting in a Q1 figure of Rs2.6 billion—down 18% from the prior period, but still 10% above Motilal Oswal’s forecasts. The overall claims ratio ticked up to 69.5%, and the combined ratio worsened to 102.2%, both modestly above estimates. Excluding the 1/n accounting effect, however, the reported combined ratio would have been milder at 100.8%. Despite these headwinds, the underlying underwriting profit matched estimates at Rs0.7 billion.

Financial and Valuations Table

The brokerage provides forward-looking financial projections that ground its bullish thesis:

Retail Segment Strengthens; Persistency Shines

Retail health insurance remains the star performer, contributing a commanding 94% to overall business, with best-in-class persistency and renewal ratios. Fresh retail business surged 25% year over year, while renewal premium ratios reached an impressive 98%. This confirms Star Health’s ability to maintain and expand a loyal customer base, ensuring revenue sustainability.

Disciplined Pricing and Channel Productivity Drive Growth

Over 65% of the book underwent price correction, and further annual price increases are on the anvil, especially in low-profitability segments. The company’s agency network exceeded 781,000 agents, with productivity per agent rising 13% from last year to Rs130,000 in Q1 FY26. Digital channels saw meteoric 73% growth in fresh business, and bank assurance (banca) distribution now channels 92% of its new business through preferred products, increasing profitability.

Investment Strategy Supports Future Yield Outlook

Star Health elevated its equity allocation in assets under management (AUM) to 17.5% by Q1 FY26, up from 10% a year prior. Management anticipates this to yield stronger returns on investments over a medium-term horizon, helping to offset short-term compression in investment income. The solvency ratio remained robust at 2.22x, well above regulatory requirements, and total AUM grew 15% year over year to Rs182.5 billion.

Management Outlook: Focus Remains Squarely on Profitability

Despite revising down prior revenue growth guidance due to portfolio realignment, management holds firm on its target of tripling FY24 IFRS profits by FY28. Efforts to clamp down on claim frequency and severity are beginning to bear fruit, with Star Health’s loss ratio trajectory expected to improve in coming quarters. Expense and commission ratios are forecasted to either stabilize or trend downward, contributing to continued operational leverage.

Key Ratings and Shareholding Structure

The stock is trading at 33.4 times FY26 earnings but expected to re-rate lower as profitability expands. Promoters held 58% of equity as of June 2025, with domestic institutional investors and foreign institutional investors holding 21.1% and 13.9% respectively. Motilal Oswal’s investment rating legend classifies stocks as BUY for returns above 15% over 12 months, NEUTRAL for -10% to +15%, and SELL for forecasts below -10%.

Actionable Takeaway for Investors

Star Health stands out for its sector leadership, well-executed pricing strategies, and resilient distribution. With a strong solvency position and clear management commitment to profitability, the research signals Star Health as a compelling BUY at current levels, with a price target of Rs520 and a medium-term investment horizon. Investors are recommended to focus on the evolving combined ratio, expense management, and improvement in investment yields as key drivers of stock upside in the quarters ahead