>MAX INDIA (SHAREKHAN)

■ A unique investment proposition: Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insurance and healthcare services. Max New York Life (MNYL), its life insurance subsidiary, is among the leading private sector players, has gained the critical mass and enjoy some of the best operating parameters.

■ Insurance—the key value contributor: MNYL, a 74:26 JV between Max India and New York Life, is the seventh largest insurance player with a market share of 5.2% and an extremely healthy NBAP margin of 21% (in FY2009). It is differentiated from its peers by its focus on traditional products, relatively low dependence on ULIPs, a highly productive agency network and high persistency rates. In our SOTP valuation of Max India, MNYL contributes Rs263 a share based on the appraisal value method.

VALUE MAXIMIZER

■ Healthcare—aggressive expansion plans: Max Healthcare has presence across the healthcare delivery value chain, addressing the primary, secondary and tertiary care needs of patients. The company plans to increase its capacity to around 1,800 beds by 2011. We value the healthcare business of Max India based on the EV/ EBITDA method and the business contributes Rs20 a share to our SOTP valuation.

■ Other business—aids cash flow: Max India also has a biaxially oriented polypropylene (BOPP) facility running at full capacity of 29,000TPA. It is in the process of expanding its production capacity for BOPP films to 49,000TPA by the end of the next financial year. The specialty product business contributes Rs12 a share to our SOTP valuation, based on the price-to-sales ratio valuation method.

■ Valuation—price target of Rs295: Apart from the above mentioned business, the company is looking at investing and building other businesses, including clinical research and general insurance, that would add to its valuations in the coming years. Moreover, the possible hike in the foreign direct investment (FDI) limit for the insurance companies and the expected public offerings by the private insurance players are two likely triggers for the re-rating of the stock. We initiate coverage on Max India with a Buy rating and a price target of Rs295.

To read the full report: MAX INDIA