Motilal Oswal has reiterated a BUY call for Star Health and Allied Insurance Company, setting a target price of Rs 570. The report underscores Star Health’s evolving fundamentals, notably the surge in demand following GST exemption on health insurance, improved claims ratio, and continued investments in technology to support long-term profitability. As the Indian health insurance leader refines distribution, claims management, and operational efficiency, Motilal Oswal remains constructive on its growth outlook.

In Brief: Star Health’s Outlook Transformed by Tax Reforms and Strategic Focus

The landscape for Star Health shifted decisively post-GST waiver, triggering a 50% spike in new business as affordability improved across market segments. Motilal Oswal’s latest review calls out stable claims ratios, strong retail health momentum, improved channel productivity, and prudent cost management as key levers for earnings accretion. Investors are advised to remain attentive to the differentiated channel strategy, evolving cost landscape, and the increased transparency ushered in by regulatory changes.

Latest Recommendation and Price Target

Motilal Oswal reaffirms its BUY rating on Star Health, with a target price of Rs 570, suggesting a potential upside of about 19% from current levels. This price is anchored on 26x Sep’27E IFRS PAT, reflecting both stability despite moderate profit setbacks and optimism on medium-term margin expansion.

Key Financial Metrics and Levels

Star Health is trading at a CMP of Rs 480, with estimates forecasting improvement in EPS from Rs 11.0 in FY25 to Rs 16.3 in FY27E. The combined ratio, a crucial measure of insurance profitability, is expected to improve to 98.8 in FY27E, down from 101.1 in FY25. The commission ratio, now GST-inclusive, will hover near 15.5-15.8%, while the expense ratio may ease down to 14.3% by FY27E. The solvency ratio remains robust at 2.15x, and RoE is forecast to improve from 9.5% in FY25 to 11.7% in FY27E.

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Retail Health, Distribution, and Channel Productivity

The retail health segment commands a 96% share, growing 8% YoY with the group health business rationalized to exit loss-making accounts. The agency channel remains the backbone, delivering 83% of business and expanding rapidly, with 30,000 new agents added in H1FY26 and 21% improvement in agent productivity. The digital segment is surging—fresh business from digital sources rose 47% YoY as direct and partner-led models both flourished.

Impact of GST Reforms and Cost Structure Evolution

The October GST exemption catalyzed a 50% boom in new policy demand, badly needed to lift both growth and persistency rates amid rising sum insured. With commissions now GST-inclusive, Star Health ensures pricing clarity and sustains distributor motivation. Expense ratios have moved slightly lower thanks to operational optimization, even as commissions surface higher due to tax structure changes.

Claims and Portfolio Quality: Subtle but Steady Progress

Claims performance has improved—the retail health loss ratio for Q2FY26 fell to 71.3%, while group loss levels dropped sharply to 79.3%. This was achieved through better telemedicine adoption, stricter hospital protocols, and advanced fraud detection. The company’s segment-led underwriting and geographic fine-tuning support the portfolio’s superior profitability profile.

Investment Income and Solvency Dynamics

Investment yields moderated slightly to 6.5% for H1FY26, below the previous year and estimates, still leaving AUM growth at a healthy 14% YoY at Rs 186.7 bn. The solvency ratio remains strong at 2.15x, and leverage has inched up, reflecting prudent risk management within regulatory guardrails.

Operational and Financial Risks

Headline risks include subdued overall premium momentum due to accounting changes, pressure on profitability from higher commission ratios, and a marginal dip in investment yields. However, GST reform, repricing in retail portfolios, and an expanding distribution base are expected to provide enduring tailwinds.

Strategic Focus and Future Trajectory

Star Health is focusing on SME health after strategically exiting large, unprofitable corporate accounts, positioning itself to ride the next wave of high-quality growth. The company’s long-term playbook is anchored in channel productivity innovation, digital scaling, and optimizing the combined ratio to consistently outperform.

Investor Takeaways: Levels and Target

With a current market price of Rs 480 and a target of Rs 570, investors have a 19% potential upside. Support for the stock is seen near Rs 450, while the critical resistance ahead of the target zone is at Rs 540.
In sum, Motilal Oswal’s latest note signals confidence in Star Health’s ability to leverage a favorable policy environment, sound capital base, and prudent portfolio discipline.