As per the proposed transaction, Axis Bank and its subsidiaries Axis Capital and Axis Securities have the right to acquire up to 19 per cent stake in Max Life; of which, Axis Bank proposes to acquire up to 9 per cent. Axis Capital and Axis Securities together propose to acquire up to 3 per cent of the share capital of Max Life in the first leg of the transaction, according to a statement.
In addition, Axis entities have the right to acquire an additional stake of up to 7 per cent in Max Life, in one or more tranches, which they intend to take over the course of the next few years, it said.
Following the development, Max Financial Services surged 10 per cent to hit a high of Rs 938.65 on BSE. Axis Bank rose 4 per cent to hit a high of Rs 779.05.
“Max Financial stock has delivered 44 per cent returns since the announcement of this deal. We expect the re-rating to continue, given Max’s’ strong business performance. We maintain our Buy rating with a revised target of Rs 1,000 per share (3.3x FY23 EV), considering 80 per cent stake for Max Financial and 20 per cent holding company discount,” said Motilal Oswal Securities.
Prabhudas Lilladher said that the combination of strong improvement in operating performance of life insurance business, reducing complexity on holding structure and promoters action by reducing pledge has led to re-rating in Max Financial in last three years as well as improved Max Life valuation from 1.8 times EV to 2.8 times EV.
“We believe, strong growth of 15 per cent over FY21-FY25 and structural margins of 25 per cent with long term margins moving to 28-30 per cent has room for multiples to trade at 3 times EV on back of strong display of growth, industry-leading margins & RoEV of 20 per cent,” it said.
CLSA has a target of Rs 1,225 on the stock, as it expects significant value accretion from Axis Bank JV. The brokerage said that Max Financial deserves premium valuations, as its business model has transformed over the years.
“We hope we will be able to make quick progress in harnessing the synergies and benefits from this joint venture between Max Life and Axis Entities,” MFSL Managing Director Mohit Talwar said.
The approval from the insurance regulator was an integral step in this joint venture transaction which was first announced in April 2020, the statement said.
MFSL, part of Max Group, owns and actively manages a 93.1 per cent stake in Max Life Insurance.
