Buy Max Financial Services; target of Rs 1020: Sharekhan

Sharekhan's research report on Max Financial Services

Axis Bank has announced that it will buy the balance ~7% stake in Max Life from Max Financial at fair market value using discounted cash flows (DCF) instead of valuation as per Rule 11UA of the Income Tax Rules, 1962. The revision in valuation has been done consequent to the guidance received from IRDAI (Insurance Regulator). With this announcement, uncertainty over the Axis Bank Bancassurance tie-up with Max also goes away. The bank has not disclosed the revised valuation; however, we expect the revised valuation for the balance 7% stake should be atleast ~ Rs. 22 billion (i.e Rs.166/- per share of Max Life because as per the annual report 2022, Max Financial acquired 0.74% stake of Max Life from Axis Bank at Rs.166 per share during March 2021), which would be higher by Rs. 18 billion compared to the earlier transfer price.

Outlook

We believe now the key catalyst would be the reverse merger of Max Financials with Max Life Insurance along with the listing of Max Life Insurance. Valuations are inexpensive, factoring some uncertainty about the event. We maintain our Buy rating on the stock with an unchanged PT of Rs. 1,020.