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Con-call on deal and updates
Management highlighted that the proposed investment of Rs5.2bn by Life
Healthcare (LHC SJ) in Max Healthcare (92% owned) will help the group
to double capacity to 1,900 beds by end 2012 and manage gearing levels.
The deal values Max Healthcare at ~40% premium to ours and strategic
alliance may bring synergies. During 5MFY12, while the life insurance
business has seen 18% YoY fall in new business premiums, it continues
to outperform private peers (down 41%). Our target price of Rs200 is
based on valuation of MNYL at 12x FY13 NBAP. Maintain BUY.
Healthcare business on track and benefits from the deal
Max Healthcare’s expansion is on track whereby capacity will grow from +900
beds to 1,900 by end 2012. New capacity will become functional over 12-18
months and improvement in utilisation level will be a key to expansion in
Ebitda margins. Management also sees benefits from the alliance with Life
Healthcare that has 27% share of South African market through 63 hospitals
(+8,000 beds) and Ebitda margin of ~25%. Life Healthcare plans to invest
Rs5.2bn for 26% stake in Max Healthcare (new shares) which implies
valuation of Rs14.7bn- ~40% premium to our valuation (6% upside to SOTP).
Not only does it reaffirm our valuation of Max Healthcare, it also brings much
needed capital to fund capex and reduce the debt levels.
Life insurance: Premiums falling, though lower than peers
During 5MFY12, Max New York Life has reported 18% fall in new premiums
(APE based), which however is lower than the 41% fall in premiums of peers
in the private sector. The outperformance is coming through a combination of
(1) better than expected scale-up of bancassurance tie-up with Axis Bank and
(2) higher share of traditional insurance. As per management, cost cutting
measures have helped to pull down expense ratio from 34% in FY11 to ~25%
and conservation ratio is also holding-up well. Management expects NBAP
margins to be in the range of 12-14%- MNYL’s lower than peer margins are
partly due to a higher cost base.
Value MNYL at 12x FY13 NBAP; Maintain BUY
We expect NBP to grow by 5% in FY12 (positive base from 2H) and by 13% in
FY13; we build NBAP margin at 13%. We value the life insurance business at
Rs80bn based on appraisal value that includes goodwill at 12x FY13CL NBAP.
Max India’s 70% share life insurance business (after 20% holding company
discount) is worth Rs163/ share. Healthcare business (Rs25/share) is valued
on a combination of enterprise value and replacement cost. Maintain BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Con-call on deal and updates
Management highlighted that the proposed investment of Rs5.2bn by Life
Healthcare (LHC SJ) in Max Healthcare (92% owned) will help the group
to double capacity to 1,900 beds by end 2012 and manage gearing levels.
The deal values Max Healthcare at ~40% premium to ours and strategic
alliance may bring synergies. During 5MFY12, while the life insurance
business has seen 18% YoY fall in new business premiums, it continues
to outperform private peers (down 41%). Our target price of Rs200 is
based on valuation of MNYL at 12x FY13 NBAP. Maintain BUY.
Healthcare business on track and benefits from the deal
Max Healthcare’s expansion is on track whereby capacity will grow from +900
beds to 1,900 by end 2012. New capacity will become functional over 12-18
months and improvement in utilisation level will be a key to expansion in
Ebitda margins. Management also sees benefits from the alliance with Life
Healthcare that has 27% share of South African market through 63 hospitals
(+8,000 beds) and Ebitda margin of ~25%. Life Healthcare plans to invest
Rs5.2bn for 26% stake in Max Healthcare (new shares) which implies
valuation of Rs14.7bn- ~40% premium to our valuation (6% upside to SOTP).
Not only does it reaffirm our valuation of Max Healthcare, it also brings much
needed capital to fund capex and reduce the debt levels.
Life insurance: Premiums falling, though lower than peers
During 5MFY12, Max New York Life has reported 18% fall in new premiums
(APE based), which however is lower than the 41% fall in premiums of peers
in the private sector. The outperformance is coming through a combination of
(1) better than expected scale-up of bancassurance tie-up with Axis Bank and
(2) higher share of traditional insurance. As per management, cost cutting
measures have helped to pull down expense ratio from 34% in FY11 to ~25%
and conservation ratio is also holding-up well. Management expects NBAP
margins to be in the range of 12-14%- MNYL’s lower than peer margins are
partly due to a higher cost base.
Value MNYL at 12x FY13 NBAP; Maintain BUY
We expect NBP to grow by 5% in FY12 (positive base from 2H) and by 13% in
FY13; we build NBAP margin at 13%. We value the life insurance business at
Rs80bn based on appraisal value that includes goodwill at 12x FY13CL NBAP.
Max India’s 70% share life insurance business (after 20% holding company
discount) is worth Rs163/ share. Healthcare business (Rs25/share) is valued
on a combination of enterprise value and replacement cost. Maintain BUY.
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