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Max Financial, Axis Bank gain 4-6% each on IRDAI nod for M&A deal

Max Financial was trading at Rs 906.25, up Rs 52.90, or 6.20 percent at 10:31 hours. It touched a 52-week high of Rs 938.65

February 25, 2021 / 12:21 PM IST
 
 
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Max Financial Services share price jumped over 6 percent intraday on February 25 after Insurance Regulatory and Development Authority of India (IRDAI) gave its nod for the acquisition of up to 12 percent stake in Max Life Insurance by Axis Bank and its subsidiaries.

Max Financial was trading at Rs 906.25, up Rs 52.90, or 6.20 percent at 10:31 hours. It touched a 52-week high of Rs 938.65. It has touched an intraday high of Rs 938.65 and an intraday low of Rs 893.45.

The IRDAI approval was an integral step in this long-awaited joint venture transaction which was first announced in April 2020.

As per the proposed transaction, Axis Entities have the right to acquire up to 19 percent stake in Max Life, of which, Axis Bank proposes to acquire up to 9 percent and Axis Capital Limited and Axis Securities Limited together propose to acquire up to 3 percent of the share capital of Max Life in the first leg of the transaction.

Max Financial Services said in a statement that in addition, Axis Entities have the right to acquire an additional stake of up to 7 percent in Max Life, in one or more tranches, which they intend to acquire over the course of the next few years.

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Analjit Singh, Chairman of Max Group and Max Financial Services (holding company of Max Life Insurance) said that this joint venture will strengthen their position as a top leader in the Indian life insurance sector which is showing clear indications of rapid and enduring growth.

Also, share price of Axis Bank gained over 3 percent and was the top Sensex gainer following the deal.

After an advisory by Reserve Bank of India, Axis Bank and its subsidiaries agreed to enter into revised agreements with Max Financial for acquisition of up to 19 percent of the equity share capital of Max Life.

The initial plan was for Axis Bank to acquire up to 29 percent in Max Life. But, Axis Bank in August 2020 reduced this and proposed to acquire 17 percent share in Max Life.

Global research firm CLSA has reiterated buy on Max Financial and has raised target to Rs 1,225 per share. It is of the view that IRDAI nod for Max Live deal removes the distribution overhang, according to a CNBC-TV18 report.

"Axis JV can help structural improvement in growth outlook and VNB margin and have the company as our top pick," the research firm said.

Jefferies has upgraded the stock to buy and has raised target to Rs 1,000 per share. It has raised earnings estimates and said that visibility of agreement can support re-rating.

On the other hand, Morgan Stanley has maintained its overweight rating on Axis Bank with target at Rs 1,000 per share, according to CNBC-TV18 report. Axis Bank was trading at Rs 775.55, up Rs 26.80, or 3.58 percent. It has touched an intraday high of Rs 779.05 and an intraday low of Rs 760.

Research and broking firm Motilal Oswal is of the view that IRDAI’s approval addresses the long awaited overhang and clears the way for a longterm strategic partnership between the two entities. This partnership improves the long-term growth visibility/cross-sell opportunity for Max Life. It also increases the focus towards higher margin products and productivity improvements from the distribution mix. We expect VNB to grow at 21 percent CAGR over FY20-23E and estimate operating RoEV to grow ~20 percent in FY23E, with embedded value (EV) reflecting 18 percent CAGR over FY20-23E.

"We maintain our buy rating with a revised target of Rs 1,000 per share, considering 80 percent stake for Max Financial and 20 percent holding company discount. Max Life remains our preferred pick in the life insurance space.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​
Sandip Das
first published: Feb 25, 2021 11:20 am

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