Maintain ‘buy’ on Max India with target price of R591 per share. The simplified structure, superior operating performance of life insurance business, substantial scalability potential in healthcare and potential value unlocking in other nascent businesses will result in the stock outperforming.
The company’s strengths lie in huge scalability potential; and globally experienced strategic partners provide technical know-how. Factoring in benefits of stable government and improving outlook on macros augurs well for reversing the drop in financial savings .
In the insurance space, we expect Max India to be first on the block to capitalise on the same given its 1) superior quality of book leading to best-in-class conservation ratios; and 2) strategic partnership with Axis Bank and Yes Bank. These along with huge scalability potential in its healthcare business and potential value unlocking in other nascent businesses, will aid Max India outperform.
The company’s Q1FY16 was a mixed bag with varied performance across business verticals. Growth in life insurance business was under pressure (on higher base and lower sales contribution from bancassurance channel) and it continued to deliver across critical business metrics namely persistency, healthy AUM accretion and improving expense ratio which is critical for long–term earnings sustainability.