We are maintaining ‘underweight’ on Max India, but raising the price target to R490 per share (earlier R375). Our revised target reflects a lower bear case probability, lower cost of equity (0.25ppt, to 12.3%), higher earnings estimates, and rolling valuation forward nine months. We find implied valuation rich at the current price, given muted premium growth (flat in F1H16) and 16-17% RoEV. Our target implied valuation for the insurance entity is 2x FY17e EV.
We are positive about Max India’s improving fundamentals and decreasing regulatory risk in insurance. However, implied insurance valuation is expensive (2.5x FY17e EV) for muted premium growth and 16-17% RoEV estimate.
We see business fundamentals at Max Life insurance improving We cite a gradually recovering macro climate and material moderation in rates. Healthcare profitability has continued to picked up (in line with MSe expectations) and premium growth at Bupa has improved with traction from the bancassurance channel.
Max India is up 45% y-t-d versus a decline of 6% in the Sensex. The implied EV multiples for Max Life insurance are 2.5x for FY17e (3.1x for FY15 EV). We find that expensive, in view of what some recent insurance stake sales have implied.
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