Max Financial Stock Hits A Record High As Analysts Up Targets After Axis Deal

Shares of Max Financial Services Ltd. jumped to a record high as analysts raised price targets after the insurance regulator approved Axis entities’ stake acquisition in its life insurance subsidiary.

Max Financial, in an exchange filing on Wednesday, said the Insurance Regulatory and Development Authority of India has given its formal approval for the acquisition of up to 12% stake in Max Life Insurance Co. by Axis Bank and its subsidiaries—Axis Capital Ltd. and Axis Securities Ltd.

According to the proposed transaction, Axis entities have the right to acquire up to 19% stake in Max Life. Of which, Axis Bank proposes to acquire up to 9%, while Axis Capital and Axis Securities together intend to buy up to 3% of the share capital of Max Life in the first leg of the transaction.

Axis entities also have the right to acquire an additional stake of up to 7% in Max Life, in one or more tranches, which they intend to acquire over the course of the next few years, the filing said.

Analysts said the joint venture transaction, which was first announced in April 2020, is very crucial as bancassurance channel of distribution drives almost 60% of new premiums and brings scale benefit as well.

Shares of Max Financial rose as much as 10%—the most in six months—to a record Rs 938.65 apiece in early trade on Thursday. The stock is up for the third straight day. Of the 20 analysts tracking the company, 18 have a ‘buy’ rating and two suggest a ‘hold’, according to Bloomberg data. The stock crossed its 12-month consensus price target of Rs 907.3 on Thursday.

Here’s what the analysts had to say about the approval:

Jefferies

• Upgrades to ‘buy’ from ‘hold’; raises price target to Rs 1,000 apiece from Rs 830.
• IRDAI approval of Axis deal enhances visibility of distribution partnership.
• Merger between Max Financial and Max Life can lead to direct listing of life insurance business.
• Partnership with Axis Bank is key given that this channel drives almost 60% of new premiums and brings scale benefits.
• Expects margin to normalise to 26% for FY22-23.
• Slightly raises value of new business estimates and sees 15% CAGR in APE and 24% CAGR in VNB over FY20-23.

Nomura

• Maintains ‘buy’ rating; hikes price target to Rs 1,050 from Rs 850.
• Final hurdle is now crossed and the banca partnership has been perpetuated.
• Reduces holding company discount assumption to 10% from 20%.
• Visibility surrounding reverse merger remains limited, while the probability is higher.
• Need to see if Max can maintain margins with no rise in compensation to Axis.
• Deserves premium valuation with best in-class VNB margins and RoEVs, strong growth, balanced product mix.
• Remains preferred insurance pick.

Motilal Oswal

• Maintains ‘buy’ rating; raises price target to Rs 1,000 from Rs 860.
• IRDAI approval addresses the overhang on distribution.
• Deal provides long-term growth visibility.
• Growth momentum stays strong; market share rises 110 basis points over FY21 YTD.
• VNB margins buoyant, operating RoEV to sustain 20%.
• Expects VNB to grow at a 21% CAGR over FY20-23E.
• Remains preferred pick in the life insurance space.

Prabhudas Lilladher

• Maintains ‘accumulate’ rating; hikes price target to Rs 995 apiece from Rs 760.
• Deal uncertainty ends on distribution given that Axis Bank has been a strong driver of growth.
• Max Life has consistently delivered on APE growth throughout the pandemic led by protection and non-par savings mix improvement.
• There still is further room for improving protection mix with higher retail share.
• Only impending hurdle is to create value for Max Financial shareholders with listing of Max Life which can be achieved through reverse merger.