Max India is Max Group’s holding company for its life insurance (72% stake in Max Life), Healthcare (46% stake in Max Healthcare) and other subsidiaries. Max Life is India’s fourth largest private insurer and its game-changing tie-up with Axis Bank has catapulted it into the top league. Structurally a large bank tie-up is positive, but Max Life’s 60% PAR mix makes it most vulnerable of the Indian insurers to adverse regulations on PAR expenses. With Max Life contributing more than 75% of value for Max India and risk of new regulations high, we initiate with ‘reduce’.
Max Life contributes +75% of our SOP value of Rs 460/share . We value Max Life at Rs 133 billion, implying 2.05x Sep-17F EV. The current price implies 2.3x Sep-17F EV, at a premium to our target multiple for HDFC Life and does not factor in any negatives from adverse regulations on PAR.
The Axis Bank tie-up in FY11 has given Max Life a much needed advantage, which has helped to increase its market share from 5% to 10% and to align its cost structure much closer to that of a bank-linked insurer.
Part of the reason for Max Life achieving high NBP margins is its high dependence on PAR of ~60%.