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Removed from Asia Pacific Conviction Buy List
Max India (MAXI.BO)
Equity Research
Life insurance gaining traction, but down to Neutral on valuations
What happened
We downgrade Max India, post the recent outperformance, to Neutral from
Buy (on CL), given: (1) relatively lower upside potential (13%) vs. other Buyrated stocks under our coverage (25%-30%), (2) lack of near-term catalysts as
we expect premium growth in Max New York Life (MNYL, about 90% of our
SOTP value) to remain subdued in 1HFY12 and improvement in persistency/
cost ratios to accrue gradually. We expect calculated NBAP margins to
decline to 12% in FY12E (from 13% in FY11) reflecting higher share of
traditional policies. Since we added it to Buy (on CL) on March 18, 2011, the
stock is up 16.8% vs. a 3.5% rise in Sensex (past 12 m +2.9% vs. +9.2%).
Current view
We revise our consolidated FY12E/FY13E EPS by -1%/+8.4% post 4Q results
to reflect lower expenses and maintain our 12-m SOTP-based TP at Rs190.
We believe MNYL is gaining traction on volumes, but FY11 PBT was 14%
below GSe on consolidation of branches and employee rationalisation.
Life insurance (MNYL): Buoyed by higher commissions and benefiting from
the recent Axis Bank tie-up (70% of branches now sell insurance), MNYL has
reported 19.6% FY11 premium growth (in line with GSe), with market share in
retail APE improving to 3.4% from 2.9% in FY10. Further, we expect the focus
to remain on traditional and regular products. Despite one-off write-down in
FY11 of Rs1.21 bn, we think cost-cutting measures are still to yield results.
Others: (1) Health Insurance – remains in investment mode (expanding
footprint, products) with accumulated FY11 loss of Rs1.6 bn and capital
invested of Rs2.9 bn. (2) Standalone (incl. specialty films) reported
higher losses than GSe in FY11 due to lower investment income. (3)
Healthcare – ramp up continued with beds rising to 926 in FY11 vs. 721 in
FY10. EBITDA margin is improving on operating leverage as hospitals
move towards steady state.
Key risks: Upside: Better cost ratios, higher volumes; Downside: Tight
regulations on traditional policies, lower persistency impacting margins.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Removed from Asia Pacific Conviction Buy List
Max India (MAXI.BO)
Equity Research
Life insurance gaining traction, but down to Neutral on valuations
What happened
We downgrade Max India, post the recent outperformance, to Neutral from
Buy (on CL), given: (1) relatively lower upside potential (13%) vs. other Buyrated stocks under our coverage (25%-30%), (2) lack of near-term catalysts as
we expect premium growth in Max New York Life (MNYL, about 90% of our
SOTP value) to remain subdued in 1HFY12 and improvement in persistency/
cost ratios to accrue gradually. We expect calculated NBAP margins to
decline to 12% in FY12E (from 13% in FY11) reflecting higher share of
traditional policies. Since we added it to Buy (on CL) on March 18, 2011, the
stock is up 16.8% vs. a 3.5% rise in Sensex (past 12 m +2.9% vs. +9.2%).
Current view
We revise our consolidated FY12E/FY13E EPS by -1%/+8.4% post 4Q results
to reflect lower expenses and maintain our 12-m SOTP-based TP at Rs190.
We believe MNYL is gaining traction on volumes, but FY11 PBT was 14%
below GSe on consolidation of branches and employee rationalisation.
Life insurance (MNYL): Buoyed by higher commissions and benefiting from
the recent Axis Bank tie-up (70% of branches now sell insurance), MNYL has
reported 19.6% FY11 premium growth (in line with GSe), with market share in
retail APE improving to 3.4% from 2.9% in FY10. Further, we expect the focus
to remain on traditional and regular products. Despite one-off write-down in
FY11 of Rs1.21 bn, we think cost-cutting measures are still to yield results.
Others: (1) Health Insurance – remains in investment mode (expanding
footprint, products) with accumulated FY11 loss of Rs1.6 bn and capital
invested of Rs2.9 bn. (2) Standalone (incl. specialty films) reported
higher losses than GSe in FY11 due to lower investment income. (3)
Healthcare – ramp up continued with beds rising to 926 in FY11 vs. 721 in
FY10. EBITDA margin is improving on operating leverage as hospitals
move towards steady state.
Key risks: Upside: Better cost ratios, higher volumes; Downside: Tight
regulations on traditional policies, lower persistency impacting margins.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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