HDFC Securities is bullish on the shares of Max Financial Services, after the company reported strong Q3 results. Last week, the company reported a 10.3 percent jump in its Q3 net profit at Rs 88.8 crore against Rs 80.5 crore in the same period fiscal. The company’s revenue also jumped by 16 percent at Rs 119.7 crore versus Rs 103.2 crore. Taking stock of the results, HDFC Secrities said that Max Life’s third quarter results were largely in line with estimates. “New Business Premium grew by 15.5% while Individual APE growth was 16.8% YoY. Product mix tilted towards ULIP due to strong performance of the equity market,” HDFC Securities said adding that the PBT for the quarter was down 25% to Rs 1.5bn due to higher investment income in the corresponding period last year. HDFC Securities notes that Max Life continues to face overhang from its dependence on Axis Bank (9MFY18:56%) which is exploring entry into Life insurance directly.
HDFC Securities has a buy rating on the shares with a target price of Rs 665. The shares closed at Rs 510.1 on BSE this afternoon. HDFC Securities’ target price implies an upside of more than 30% from the current market prices. “To mitigate itself and reduce dependence, Max Life wants to pursue aggressive M&A and build new channels. The board has approved fund raising upto Rs 50 billion. We tweak our margin and growth assumption. We maintain BUY with a TP of Rs 665,” HDFC Securities said in its report.
Last week, Max Financial Services said that it would raise Rs 5,000 crore through a preferential issue or a qualified institutional placement. The company also said that Max Life Insurance’s Assets Under Management (AUM) crossed Rs 50,000 crore milestone for the first time. HDFC Securities says that the fund raising approval for Rs 50 billion is a blanket approval to pursue M&A opportunities. “Max Life is one of the bidders for IDBI Federal. Fund would only be raised based on successful M&A only. Max Life would be the vehicle to acquire companies. The JV partner would also contribute their share of money in Max Life,” HDFC Securities said in its report.