After announcing a demerger last year, Max India has now split into three entities, with Analjit Singh stepping down as the chairman of Max Financial Services. However, he will remain the chairman of Max Ventures and Industries.
Naina Lal Kidwai has been appointed as the chairperson of Max Financial Services.
Explaining the rationale behind the same, Analjit Singh said at a press conference: "Over the years, we have been told that a lot of investors are interested in parts of what we do, but not necessarily the entire piece."
The company has now become the first life insurance company in the world to be listed.
He told CNBC-TV18 that the demerger is about focus, value creation and crispness. He also sought to allay fears by saying that the leadership change is not a precursor to any pre-determined exit from any business.
Singh also said that he may mull shifting of shareholding if value creation opportunities arise. He added that it would be unreal to say that there will be no shifting of shareholding in the future.
When asked about dilution of promoter shareholding, he said it will happen only if it is in the interest of shareholders.
Max Financial Services owns 74 percent stake in Max Life. "If there is an opportunity for the promoters to divest a piece to be able to raise their stake in any other business that could be. If Mitsui Sumitomo comes forward to want to raise their stake to 49 percent, we will engage. Equally for if somebody else in the international arena, and we are getting a lot of interest, we will certainly engage," he told CNBC-TV18's Shereen Bhan.
Rahul Khosla, MD, Max India, added: "These conversations (with investors) have led to a lot of interesting talks at the moment, but there is a lot of interest from all kinds of investors — FIIs, strategic."
The development comes after Max India received High Court approval for restructuring and the company's demerger into three separate listed entities will be effective from January.
Max Financial Services, which is the largest chunk of the restructured entity, has a life insurance business valued at Rs 10,500 crore in August 2012. Analysts estimate this business near Rs 14,000-16,000 crore.
Max India Health Insurance is the second largest chunk of the restructured entity and will have three businesses— Health Insurance, Healthcare (Hosp) and Antara – under its umbrella.
Max Speciality Films will be the smallest chunk of the restructured entity and promoters value business in it is at around Rs 168 crore._PAGEBREAK_Below is the verbatim transcript of Analjit Singh and Rahul Khosla’s interview with Shereen Bhan on CNBC-TV18.Q: Let me start by asking you about the decision to actually step away from the lion's share of the business so to speak and I know that this is part of your effort to separate ownership from management, a process that began about four years ago. But why now?Singh: Firstly I am not stepping down or I am not stepping away. I am stepping aside. This whole move about the demerger is about focus, crispness and about value creation.Q: But is this the precursor to the promoters, I know you don't like that phrase, but is this the precursor to the promoters diluting or eventually exiting either all of these businesses or at least part of these businesses?Singh: No, it is not a precursor to any pre-determined exit of any of the businesses. We have always said that we will be committed to our program of being in this service sector businesses, businesses of social good, so on and so forth. So, if your question is is this a precursor to any exit of all of these businesses or some of these businesses the answer is a categorical no. Having said that I must be very frank and candid to say that if opportunities arise for creating shareholder value, not one shareholder value but for overall shareholder value for making us more competitive in any of these businesses as we have done in the case of Max Healthcare where we have now equalised our ownership with Life Healthcare in South Africa, we have done in Max Bupa stepping up to 49 percent. We have never agreed to giving the option to Mitsui Sumitomo Insurance Group to go from 26 to 49 percent. They have the option but they don't have the right. So, we have always kept all the shareholders thinking of them as one body not the sponsor or the promoter separate from public shareholding. So, if anything is good for all which includes a larger shareholding body of all of these businesses it would be unreal for me to say that at no point will there be some shifting of shareholding and it all depends of what class of new investor and how we implore our competiveness ourselves but if our competiveness has to stay where it is and it is a question of only one shareholder benefitting and not the company there is no such move.Q: So, you are not averse to the idea of either an eventual exit of dilution if it creates value for all shareholder.Singh: Yes.Q: Let me start by asking you for an example. For instance let us look at the life insurance business at this point in time when you were talking to Sumitomo I understand that they would like to eventually hike to 49 percent which they are allowed to under the current FDI regime. So, would you look at an acquisition or in the purpose of this shareholding change that we could perhaps see if the value comes to you would you be okay with selling out?Singh: Firstly as far as the facts on the ground today are that Mitsui Sumitomo has not expressed or evinced interest to go above 26 percent. Which means that Max Financial Services in the new set up own 74 percent of Max Life. If there is an opportunity, for either the promoters to divest a piece to be able to raise their stake in any other business, that could be. If Mitsui Sumitomo comes forward to want to raise its stake to 49 percent, we will engage. Equally, if somebody else in the international arena, as we are doing, we are getting a lot of interest from foreign institutional investors (FIIs) and the likes who would like sliver of this piece and strategic, we will certainly engage.Q: If there were opportunity for perhaps a domestic player or an Indian player to buy out Mitsui as well as some degree of promoter holding would that be something that you would consider?Khosla: Absolutely. The defining organising principle for that is what is good for the company, first. So, in this industry that we are in there is bound to be consolidation we all know what is happening in the market. There are handful of players domestically, frankly less than five who can actually play this from a domestic perspective but of course in the international arena there are several strategics who are not already here and those who are already here there are lots of opportunity for M&A as well.So, when you look at strategics who are foreign, FIIs and some domestic players this space is going to see a lot of action. For us the organising principle is how much value does any transaction create for the shareholding as a whole and if we can be a smaller part of a much larger pie versus a large part of a small pie which will remain small we will certainly take the former route.The second thing is while as Analjit said we don't have an obligation to part with the other 23 percent to our current partners. The fact is we have the choice to be able to make which is at the right time, with the right price in the right way, unlike a lot of other joint venture (JV) partnerships which have commitments which are preordained.Q: Would it make sense to have two strategics on board?Khosla: Sometimes it is difficult to manage but theoretically it is possible.Q: You said that there has been interest that is being expressed by international players. Have they lead to any advanced talks at this point in time?Khosla: I would say those conversations have lead to interesting talks at the moment. Advanced talks would be like we are going to announce something tomorrow morning. That is not the case, but there is a lot of interest as well. From all kinds of potential shareholders be they FIIs who are looking at small pieces and being financial investors to also strategics who are not here as well as strategics who are here who may want to do a little bit of consolidation. So, yes, all three.Q: The possibility, and I ask you this because you already have a distribution arrangement with Axis and they actually have a stake in the company and they have expressed an interest to hike that further. Given the competitive landscape and largely in the insurance business with the private backing of banks, would it make sense then for an Axis-Max Life deal?Khosla: We think it makes a lot of sense.Q: Axis is not buying the story?Khosla: No, that is not true; I think they have priorities of usage of capital which is their prerogative. They are very worthy partners. Let me just say that, I wouldn't be boasting if I said that we have defined a goal standard for bank assurance partnership here at a commercial level. Notice that most other bank assurance partnerships are sort of within the group. So, they are kind of preordained. Here we have earned the right to commercially make sense to both of us. So, of course we would like Axis to have a larger stake in our company because we believe that that would invest them more deeply into our relationship and we would grow alongside them. Equally they are one of the few banks which does not have a manufacturing license or company within their group. However, we have to respect the fact that Axis Bank is a publically listed company, they have priorities and they will use the capital where it makes sense to them.Singh: Have we ever talked to Axis about this option? We have but Axis seems to have taken a position that whilst they are exceedingly keen to grow the distribution side of the business, they don’t per se want to be investors in the manufacturing side of the business. So, okay, we don’t know what will come up tomorrow. But what I am trying to say is that I am not compelled by either family, legacy or structural reasons particularly after the demerger where now we have flexibility from three boards point of view we can meander as is best for all the shareholders.Q: There are certainly opportunities which you would like to explore in the life insurance business whether that amounts to dilution of your stake or not, but let me ask you this in a different manner. From your own personal interest perspective from an opportunity perspective, from a competitive perspective and from a value creation perspective of the three business and let me say from the two businesses because the third one really in that sense is your own entrepreneurial innings so to speak, from the Max Financial Services perspective and the Max Healthcare or Max India perspective, where do you see the possibility of dilution being much more real today?Singh: The financial factual answer to your question is Max Financial Services because having equalised with life healthcare in our healthcare business, the headroom is small and with Bupa the headroom is smaller. The value creation or the value realisation opportunity in Max Financial Services is higher.So, if your question is that you are going to take from Peter to invest in Tom, not to give to Tom, but to invest in Tom, obviously the headroom is higher in Max Financial Services. You must know, in the current framework, we are 74 and Mitsui Sumitomo is 26. The way our arrangement is cast that our rights stay, so long as Max Group or Max Financial Services is invested up to 10 percent. So, I have headroom; from 10 percent to 74 percent. So, long as we are the single largest investor or the owner of Max Life in whatever else Max Life will do it is really a question for Rahul and his team to advice on how is value created.Khosla: Let us look at the other side of the ledger. In Max Financial Services there is also a conversation to be had on acquisitions. Certainly the insurance market will play out. There is a big consolidation there. We have almost a 500 percent adequacy of capital reserve in our life company. We have a cache of cash sitting over there. So we have a war chest ready.Q: The war chest ready for acquisition?Khosla: Absolutely and we have the ability to raise capital, we have proved that in each one of our businesses. So, we believe that we are sitting here on both sides of that ledger. Either we are getting into an acquisition which makes financial sense for us or we are getting into a merger or some sort of arrangement where we will add value to this company without hurting anybody.Singh: Because Max Life will pursue options and opportunities based on their very strong financial position and within Max Financial Services you could go up or down like this depending on what other opportunities. So, nobody is hurt.Khosla: So, it is a quasi listing. If you think about it at the end of the day without taking away the shareholders' ability to play this on both sides of the ledger.Q: What could be the allied opportunities that you could look at as far as Max Financial Services are concerned?Khosla: There are three types, one is you could simply go and acquire another company which is currently there. We would not acquire a company just because it has a book of business. We would acquire a company because it has some tangible assets.Q: Do you have potential targets in India that you have identified already?Khosla: We have.Q: Have you spoken with anyone?Khosla: We have started those conversations and we must say our board is very supportive along the access of these three types of companies. One is a simple acquisition which we could do. Like I said the acquisition will be based on value. Whether the asset has a particular degree of quality, whether the asset has an agency force which is valuable to us or it has some other distributable asset or advantage.Q: So, what is the war chest for a potential acquisition of this kind?Khosla: Even today we have almost Rs 2,000 crore of extra capital or cash lying inside Max Life and our ability to raise capital is multiple. So, we have a very good handle on how we could approach this market at the right time with the right buttons. Second piece is actually a straightforward distribution deal for bank assurance.Q: Give me a broad timeline by when we could actually see a decision on some of these things?Singh: Firstly, the gate only opens on April 1.Khosla: I would say the next 12-18 months will see a lot of action in terms of discussion and so on and so forth and I suspect it is within that period of time that we will see something break with respect to either distribution or an acquisition or a merger. That is my estimate.Q: Within the next 12-18 months?Khosla: Yes. Well these things take time to cook. You can make a decision but there are regulatory issues and all kinds of issues.Q: Since you spoke about the regulatory issues what could be the potential drivers as well as the potential risks as far as the insurance business is concerned. From the regulatory risk point of view I understand that that is key concern that analysts are factoring in. What could be the other potential drivers from a value creation point of view as well as the top risks?Khosla: Let me take the potential risks first. There is a lot of talk about, for example expenses of management which will go towards protecting policy holders from excessive management overheads. We see that actually in Max Life as an advantage and an opportunity for us. Why, because there are two or three kinds of life companies. Those who are very efficient which we classify ourselves as. So, every cost overrun. So, every small cost overrun relative to everybody else. Our ability to therefore absorb lower cap on expenses of management is much higher and the bulk of sort of cathartic regulations are sort of behind us. Now it is going to be a matter of sort of fine tuning going forward to make sure that customer and policy holder interests are protected. The industry sort of grows and develops. I believe we should now be in the development stage rather than the regulation stage of the industry.Q: So, what does development then mean because if I were to look at the growth performance and then again for the sake of comparison to compare it to the private banks backed insurance company your growth would be about 12 percent year-on-year (Y-o-Y) at this point in time to an average of about 20-25 percent for the rest of the industry. So, what can we anticipate then in terms of growth?Khosla: For us we have always maintained our product set is not linked on investment. So, we don't sell that much of the Unit Linked Insurance Plan (ULIP) type of product that most of us do. We could do 100 percent growth. We are very good with a high teens, we have always given that guidance of high teens growth path over the next five to six years and high margins as well. It is very profitable, embedded value grows and so on and so forth. And our return on embedded value by the way is in the high 20s which is quite unusual. So, we want to build a quality business.Q: For Q2 reported revenue growth is about 24 percent YoY, cash profit growth of about 31 percent YoY, the EBITDA margin decline but that is largely on account of the acquisition. What is the kind of outlook as far as the healthcare business is concerned?Singh: Firstly it would be correct to say that we would remain regional for some more time because a lot of people ask us the question are you going elsewhere and so on. So, we will remain regional extremely NCR centric and to the extent we will go out we will go within the north.Q: More acquisitions?Singh: Absolutely. In one manner of speaking we have done two acquisitions. Both of running existing hospital, the second one which is the one in Saket has the whole opportunity to create a 2200 bed hospital. So, we really have our hands full.Q: Over the next five years what is the kind of capacity addition or bed addition that we are looking at as far as Max Health is concerned?Khosla: We should be aiming at around 5,000 beds overall from a system perspective and this acquisition that Analjit just mentioned of building another 1,200 beds next door to our flagship hospital in Saket will build hopefully a community with almost 2,200 beds in one location.Q: And do you believe that there is potential to eke out even higher margins because you are higher than your competitors?Singh: That is where I was coming to. It is not only the question of the number of bed but it is also the opportunity that we now have to go back to the drawing board to reshuffle the debt and to increase capacity where we believe we have more prowess.Q: So, what kind of cash requirements would you have as far as the healthcare side is concerned?Singh: This has already been factored in into this acquisition. We have been also because our company basically is inherently very strong. We managed a real great combination of equity and debt to be able to take the next 10 or 15 years of operations and create a debt to equity ratio which is quite great. The only part of the NCR where we are not number one in terms of capacity is the Gurgaon area. So, if we were to find any opportunity Greenfield or organic to plug that we will be (interrupted..)Q: So, that is the area that you are looking at to be able to enhance capacity?Singh: If an opportunity came.Q: 28 percent YoY growth in terms of gross premiums and 18 percent YoY decline in losses. Of course you have already discussed how Bupa has hiked its stake to 49 percent. What is the outlook then as far as Max Bupa is concerned?Khosla: Three to four factors there. One is just the sheer demand. Unfortunately if you look at the penetration of health insurance is less than one percent and certainly into our target market as well. So, I see for example great headroom for growth which is the topline also health risk management by the way is one of the key strategic levers that we have used.Now you have life insurance needs, you have healthcare needs, I hope you don't have healthcare needs but sometimes you will and you do. You have health insurance needs. Eventually you have got a long way to go but eventually you will have senior living needs. Which group particularly in NCR will give you a managed care or a life operator sort of proposition which is actually priceable.Q: That is a nice plan.Khosla: That is what we want to do.Singh: Rahul is creating a wrapper called - you have a tour operator, so why don't you have a life operator. So, he is actually working on this. These things take time.Q: I don't know if this is the right example or not but let me ask you. Because it would beg the question that are we likely to see a Ranbaxy kind of situation play out as far as the Max Group is concerned?Singh: One, never and two, heaven forbid. So, far god has been on my side so I don't think that will happen. I must explain that. When I talked about definition of family for me I am not marred with any complexity, confusion, strife within my own family. The alignment between family and business is perfect. The alignment between Rahul and his team or my top team, I actually call them mine, they are mine, and the family is perfect. The way the family has arranged its life and businesses in a separate trust and the interface that we have between the trust and the operating business is perfect. So, without being harsh or critical and it is not my business at any case to go there but structurally it is not possible for a Ranbaxy to happen. There is alertness and governance of the highest order and succession planning of the highest order and institutionalisation of each individual businesses, the group, its management, its board.One thing we didn't talk about. When you talked about my stepping down, stepping aside, stepping away please see how the chair of each business has been chosen. Why have we requested and invited Naina Lal to be chairman of Max Financial Services and Rahul to be Chairman of Max Life. Rahul knows the rhythm of Max Life. He knows how the plumbing works at Max Life. We want to bring to Max Financial Services a much broader horizon of oprationality and thinking.Q: The reason I brought up the Ranbaxy example because at the time it was also seen as creating value for shareholders. At the time the promoters got a hefty exit option. It wasn't about family strife or any of that.Singh: It was about management. The public information seems to suggest that one of the reasons that transaction happened and I had no insight and I am really not interested in any additional information. But I understand because the management of Ranbaxy was struggling. The management of any of any of my businesses or rather Max Group is not struggling. So, therefore there was a gap which was supposed to be filled or plugged by a very large Japanese strategy. That didn't happen and the rest is all history.Q: But if you get a strategy you are open to the idea as well of an exit?Singh: Yes, but the strategy will walk into a very sound management platform which is what we have today. One of our prime drivers of our lives, I am now speaking for all of our six to seven of us. Myself, Rahul, Rajesh, Rajat, Mohit, Tara and so on and so forth is reputational capital. So, we are very alert to these things. That can never happen. I cannot see any scenario where that can happen. Where is business, so you can take business. The business will go up or down but the sort of the crumbling of a company cannot happen.
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