Max Life Insurance – Revised Deal, Positive for Max Financial

Max Financial Services and Axis Bank have revised their agreement terms, with Axis Bank now to buy a 17% stake in Max Life Insurance versus 29% earlier. From Axis Bank’s perspective, the stake is lower but Axis Bank retains control/right. Axis bank currently holds 1% in Max Life and after the closure of revised deal its stake would go to 18% and Max Financial Services would hold 82%.

Axis Bank – The value accretion reduction for Axis Bank versus the earlier deal could be made up by getting additional payout / commission, which is restricted by the Insurance Regulatory and Development Authority of India (IRDAI); it may also reduce the distribution agreement length. Axis Bank would remain the largest shareholder and we understand that Axis Bank would retain control/rights, including board representation.

Max Financial’s stake in the life insurance company would be at 82%; this gain would offset any changes in other commercial terms. More importantly, the revised deal may reduce regulatory uncertainty. Fundamentally, Max Financial has improved its premium mix and shown steady growth and share gains even during the Covid-19 pandemic.

Max Life has steadily gained share and is the 4th Largest Insurer in India based on Market Share. On a 2.35x Jun-22 P/EV valuation, with EPS of Rs 3.8, Max Financial Services Stock Price of rS 720 appears fair, in our calculation.

NOTE: Please consult your SEBI registered Advisor before your investment decisions. We do not Hold any Position in Max Financial Services.