In 2022, shares of Max Financial Services underperformed the market, losing 28.83 percent of their value, steadily falling from ₹952.15 apiece to ₹656. However, the stock began this year on a solid note by gaining 17.42 percent in January so far.
The stock saw its bull run after Axis Bank announced that it would buy the remaining stake in Max Life from Max Financial Services.
This deal took place at a time when the promoter of MFS is attempting to lower its debt. Analysts expect the company to benefit from this transaction going forward.
The deal was first announced in 2020, under which Axis Bank proposed to acquire a 29 percent stake in Max Life Insurance and consequently got approval for the acquisition of a 20 percent stake. The bank then acquired a 12.99 percent stake in Max Life at Rs. 35 per share, with the right to acquire an additional 7 percent stake in the company.
On January 10, Axis Bank said it has entered into a revised agreement with Max Financial Services to acquire the remaining 7 percent stake in Max Life Insurance at fair market value using discounted cash flow method.
The revisions to the agreement follow the guidance issued by the Insurance Regulatory and Development Authority (IRDAI) in October last year.
The bank has not disclosed the revised valuation. However, brokerage firm Sharekhan expects the revised valuation for the remaining 7 percent stake to be at least Rs. 22 billion.
Axis Bank is now set to own a 20 percent stake in Max Life, easing the uncertainty surrounding the transaction. Sharekhan said that the deal is positive for Max Financial, as it receives more money for its stake in Max Life.
The promoter recently reduced the stake in Max Financial, down to 13 percent from 14.7 percent. Now higher dividend could help promoters reduce debt, it added.
Max Financial Services is building a strong franchise, characterised by a multi-channel distribution network built upon a balanced product mix. “We believe the company’s strategy to achieve a balanced product mix and focus on non-PAR savings with the protection segment will be margin accretive,” said the brokerage.
Max Life generated a stable operating RoEV of 15.7 percent in H1FY2023, and it has sufficient capital (a solvency ratio of 196 percent). The brokerage believes now the key catalyst would be the reverse merger of Max Financials with Max Life Insurance along with the listing of Max Life. The valuations are inexpensive, factoring in some uncertainty about the event.
Max Life has increased its focus on the non-PAR segment along with the protection segment. Growth in non-par savings continues to witness strong momentum, led by the annuity business. Group protection is seeing a decline due to pricing pressure in GTL policies, while individual protection is expected to do better.
The company is increasing its focus on annuity and protection, which would support the overall growth momentum. It has been onboarding newer bancassurance partners and new-age digital players, which would not only help diversify the mix but also provide a higher sales capacity for it, it added.
The brokerage anticipates sectoral tailwinds may result in providing a positive trigger for improving growth metrics going forward.
Sharekhan maintained its "buy" call on Max Financial Services with a target price of ₹1,020 piece, indicating an upside potential of 28.30 percent from the stock's Thursday closing price.
Max Financial Services Limited (MFSL) is part of India’s leading business conglomerate Max Group. Focused on life insurance, MSFL currently owns an 87 percent majority stake in MLI.
Max Life is India’s largest non-bank private life insurer and the fourth-largest private life insurance company. The company offers comprehensive long-term savings, protection, and retirement solutions.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
