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Prabhudas Lilladher
Max Financial Services (Buy)
CMP: ₹394.6
Target: ₹695
With its board approval Max Financial Services (MaxF) has agreed to swap MSI’s 19.98 per cent stake in Max Life for 21.45 per cent in Max Financial with fresh issue of shares leading to MaxF holding increase to 91.77 per cent from 71.79 per cent currently.
With time, it will also acquire the balance stake from MSI at same price and move holding close to 100 per cent which will reduce structure complexity, while will provide MSI access to listed entity.
We can speculate this structure is being carried to collapse holding and operating company structure and get life insurance listed and also can be done for a strategic investor to take larger holding and should augur well going ahead. Although challenges are promoter pledge of 80 per cent and acquisition part stake from MSI and Axis will have to be closely looked (will be no share swap). Key parameters remain on track with business growth of 23 per cent with improving margins towards 20-21 per cent and 16 per cent protection mix.
We retain our ‘buy’ rating with revised target price of ₹695 (from ₹650) based on 2.6x Mar-21 EV.
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