Max India ltd and Max Financial-Updates

Dear All, Max India has run up quite well after our recent entry at 56 in Aug-19 (click here for previous post on Max group).It is trading around 80 so good 50% growth in last 2 months but if you ask me it is just the start.

Healthcare Business: As shared in the last post on Max India, I am a great admirer of this man Abhay Soi the current chairman of Max Healthcare and I have very high expectations from him. And by looking at this quarter results he has just proved his mettle. They have given stunning set of numbers. Max healthcare revenue grows 13% to 753 cr vs 664 cr. But the star performer is the EBITDA margins which have grown 79% to 116 cr vs 65 cr last year. EBITDA margins are at 15.4% an improvement of 4.36%. Net profit is at 30 cr vs loss of 7 cr last year. So this is a great turnaround and looks like Abhai soi is straight on the task. He is a champion in turnarounds and revivals…a master in cost rationalization and improvement in efficiency.

I do not have the numbers for matured and new hospitals of max healthcare because for Apollo Hospitals the EBITDA margin of matured hospitals is around 22% but for the whole business the same is around 14% so Max healthcare is doing fine although there is still immense scope for growth because current phase is just the start of restructuring post-merger with Radiant life.

Real estate business- As I have shared earlier real estate is going to be the next focus area for the group and I am expecting high activity in this sector from the group. Like for Max Venture, I am eagerly waiting for some news regarding acquisition of some distressed realty project by Max Estates. I think that very soon we’ll see the heightened activity in real estate as distressed real estate developers will run for shelter to much better players like Max group. Banks will start pressing for loan repayments now as they have almost cleaned and provided for the infrastructure NPA’s and next segment is real estate where I think the quantum of distress will be less because at good prices real estate still is capable of generating high demand as compared to distressed assets in the form of Road, power and steel plants.

Max Finanacial Services: Max Fin is also doing good and touched 480 from 400 levels. As I have shared earlier this one is grossly undervalued. Max life is the brainchild of Analjit singh and he has transformed this one into one of the best professionally managed insurance company with very strong ethics. They still have one of the most productive and well trained agency network and this is going to be a critical factor because Max Life is looking to grow their pure protection business (term plan) where bancassurance has very little impact. Bancassurance is best suited for ULIPs where ticket size is higher not for term plans. But term plans are the best for life insurance business as they are simpler and high margin products and Max India is at 2^nd number with 17% share of term plans out of its total premium income. HDFC is at the first…the likes of SBI and ICICI are much behind and they are mainly ULIP players the demand for which is fading away and that’s why I feel in no case SBI life should get so much higher valuations than Max life.

Earlier i made 5-6 times gain in the erstwhile max India which I sold in 2016. But after that it has almost doubled its premium income and but trading at much lower price and the major reason as I have explained earlier is pledged holding of Analjit singh (some 80-90%). But as i have explained in the earlier Post the debt of analjit singh is against real estate assets and he may choose to sell his stake in max Life or some real estate assets although as per the news reports he is looking to sell 10% stake in Max Life and I think with this debt issues will be resolved.

But one thing, Analjit singh has chosen to part away his holding in Life insurance business but have not opted to sell his real estate assets which clearly shows his priorities at present and that’s why I feel that he is going to do something big in real estate.

Coming back to Max Life, apart from stake sale and pledged share issue the next big trigger is investment by Axis bank which is looking to establish its own insurance business. Axis bank holds 2.99% in Max life at present. I think Analjit singh may even sell his 10% stake to Axis bank although as per media reports Munjal family is in the fray.

But still Max Fin is trading very cheap. As I have shared in the previous post, at that time its market value was around 10000 cr which means it was trading at 1.6 times (now around 2) of its Embedded value (EV) which in my view was extremely low for a highly efficient and reputed life insurance player. SBI Life trades at 5 times its EV and HDFC at some 20 times. Last year both SBI Life and Max Fin were trading at 3 times EV so one can see the gross undervaluation. Could not get time to study the results of Max Fin but I am planning to post a detailed study on max Financial soon. 

So I think both Max India and Max Financial are still worthy for investing money but I also feel that this may be the last opportunity to pick both at these levels.

 (Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post).