The listing of the third entity of the Max Group, post-demerger of erstwhile Max India, sent some ripples through the market on Thursday. The holding company of Max Healthcare, Max Bupa (health insurance) and Antara Senior Living, now named Max India, listed on the NSE at ₹180 a share, but fell and got locked at the lower circuit of 5 per cent at ₹171 on the NSE. With the per share fair value pegged at about ₹100-110 for Max India, it is not surprising the stock is finding no takers at the far higher price of ₹171.

CSR plans and mergers The erstwhile Max India, under its corporate restructuring plan, was to be demerged into three companies, each of which was to be listed once the demerger was complete. Max Financial Services (MFS) is now the holding company of Max Life, the company’s life insurance business in which it holds 68 per cent. This was listed in January this year. The second company, Max Ventures, holds stake in the manufacturing arm, Max Speciality Films. This company was listed in June. But both got listed at a price mostly in sync with analysts’ calls.

Fair value Max India, on the other hand listed on Thursday at a price that was over 60 per cent higher than the fair value assigned to these businesses.

Max Healthcare, that operates network of hospitals in North India, is a JV between Max India (46 per cent stake) and South African player Life Healthcare (46 per cent). Max Healthcare focuses on high-end healthcare. This business started to show significant improvement, turning cash positive in 2013-14. The company’s revenue has grown at a compounded annual growth rate of 26 per cent between FY11 and FY16. The EBITDA has grown a robust 34 per cent annually during this period.

Max Bupa (health insurance), in which Max India holds 51 per cent stake, is also a fast-growing business. Max Bupa is one of the four standalone health insurers in the country. Given the increasing medical costs and growing awareness of medical insurance products, this market is expected to grow at a healthy pace in the coming years. The net premium for Max Bupa grew 24 per cent in 2015-16. Valuing the healthcare business at 16 times EV/EBIDTA for FY17 and Max Bupa at its recent deal value (Bupa paid ₹191 crore to Max India for a 23 per cent stake last year), the fair value of Max India comes to about ₹110/share.

Faulty market-making? It is therefore, not surprising that investors shunned the Max India counter after the stock listed at a steep price. Shares worth just ₹62 crore were traded.

Prices for entities listing on exchanges are ideally discovered through a market-making mechanism, wherein, there is a special pre-open session between 9 a.m. and 10 a.m. according to market players.

During the first 45 minutes order entries take place where there is dissemination of price and buy and sell quantity. Order matching takes place at the end of this period and the volume weighted average price during this session becomes the opening price at the time of listing.

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