We maintain a ‘buy’ rating on Max India with a target price of Rs 500. We have valued the company on a sum-of-the-part basis. The value of the life insurance entity using the appraisal-value method with FY16 as the base year for embedded value.
However, the stock has rallied 23% in the last five trading sessions. In our view, this rally has priced in benefits of corporate restructuring and, hence, we see limited upside potential in the stock at current valuation.
On Tuesday, Max India announced a corporate restructuring plan to split the company into three separate units — Max Financial Services, Max India, and Max Ventures and Industries. Max India corporate restructuring is value accretive for shareholders.
Max India’s board has approved a corporate restructuring plan to vertically split the company through a demerger into three listed companies – Max Financial Services: The existing company will be renamed Max Financial Services and will hold a 72.2% stake in Max Life Insurance. Max India (resulting Company 1): It will house Max Bupa, Max Healthcare, and Antara Senior Living businesses and will be called Max India Limited. Max Ventures and Industries: The third company will be called Max Ventures and Industries (resulting Company 2) and will house the Speciality films business.