Buy Max India, target of Rs 925: Merrill Lynch

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Buy Max India, target of Rs 925: Merrill Lynch

Broking house, Merrill Lynch is bullish on Max India. It has initiated coverage on the stock with a buy rating and target price of Rs 925.

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Broking house, Merrill Lynch is bullish on Max India . It has initiated coverage on the stock with a buy rating and target price of Rs 925.

The Merrill Lynch report on Max India:

About company

"Headquartered in New Delhi, Max India started operations in the 1980s as a manufacturer of bulk drugs and has since transformed itself into a multi-business corporate. Max's current businesses include life insurance (Max New York Life, 74% stake), healthcare (Max Healthcare Institute, 70% stake), clinical research (Neeman International, 100% stake), and specialty plastics (Max India, 100% stake)."

Direct play on Indian life insurance sector

"Max India is a direct play on Indian life insurance sector with the insurance business contribution over 60% of its value (v/s 15-20% for most other players). Based on new business achieved profit, NBAP methodology, we have valued MNYL at USD 770 million for FY08; at 60% stake we have valued Max's insurance stake at USD 462 million (Rs 585 per share of Max). However the company is likely to report positive earnings only after FY10 due to accounting losses on Insurance business on account of conservative accounting standards."

Max healthcare - entering take-off stage; value - Rs 205/sh

"Max Healthcare is one of India's most aggressive healthcare players, with focus in the National capital Region (Delhi and vicinity). Driven by the impact of its two phase expansion, we expect bed capacity to more than triple to 1300 beds and revenues to grow 5x by FY09E (USD 153 million). We value Max Healthcare at USD 162 million (15xFY08E EBITDA multiple, in-line with Asian Healthcare average)."

Neeman International (CRO) is the wild card; Rs 80/sh

"Neeman, Max's clinical research business (CRO) is set to scale-up revenues to about USD 50 million (from USD 6 million order book) over the next three to four years. We have valued this business at Rs 80 per share, based on 10x FY08E EV/EBITDA."

Initiating coverage - Buy with a PO of Rs 925

"We initiate coverage on Max India with a Buy and price objective, PO of Rs 925 per share, based on sum-of parts valuation. Max is a multi-business play involving rapidly evolving themes - life insurance, healthcare and clinical research. In our view, the market is yet to fully factor in the rising value of its insurance subsidiary and the strong growth trajectory of its healthcare business. Slowdown in insurance growth and execution delays in healthcare pose key risks to our PO."