Buy Max Financial; target of Rs 595: HDFC Securities

HDFC Securities' research report on Max Financial

MAXL reported a stable 3QFY19 as total APE printed Rs 8.7bn (+11.3% YoY/+1.0% QoQ). Share of protection in the mix rising to 12% (+400bps YoY), higher interest rates and better operating performance pulled 9MFY19 VNB margins (post overrun) higher to 20.4% (+240bps YoY, flat QoQ). On the back of expected 4QFY19 seasonal uptick, management is confident on closing FY19E at VNB margins of ~20.5-21.0%.

Outlook

Given that the distribution agreement is mutually beneficial for both Axis and MAXL, we suspect that MAXL may become an attractive takeover candidate for Axis Bank This holds optional upside value beyond our TP of Rs 595 (FY21 EV + 13.6x FY21E adj. VNB).