Company
Background
Max
India Limited is a multi-business corporate. Max New York Life (MNYL),
incorporated in 2000 is a joint venture between Max India Ltd. and New York
Life, a Fortune 100 company. Max Healthcare (MHC) operates eight centres in
Delhi & NCR, offering services in over 30 medical disciplines. MHC has state
of the art tertiary care facilities at Saket in South Delhi, secondary care
hospitals at Pitampura, Patparganj, Gurgaon and Noida and an out patient
facility, the Max Medcentre and a Speciality centre focused on Eye and Dental
care at Panchsheel Park. Max Speciality Products (MSP) produces a wide range of
sophisticated barriers and packaging films. Max Bupa Health Insurance Limited, a
joint venture between Max India and UK-based Bupa Group is on course to start
operations in the next 12 months.
Investment
rationale
Higher
NBAP margins and persistency ratios- give fillip to life valuations
During
FY09, MNYL registered a growth of 42% in gross premium to Rs.3857 crore inspite
of recessionary conditions. Annualised Premium Equivalent (APE) growth was at
20% to Rs.1620 crore. Considering 5%-6% GDP growth, even if we assume 20% growth
for next couple of years in APE, expected FY11E new business achieved profit (NBAP)
comes to Rs 419 crore at 18% margin. The company has actually reported NBAP
margin of 21% in FY09 which is higher than most peers. The company’s
persistency ratio is also higher at 82% which depicts the better quality of
policies sold and hence higher margins. The geographic coverage has increased to
581 offices across 382 locations as at end FY09 with addition of 339 offices
during this year. Agency force stands at 84335 with 47459 agents added in FY09. MNYL
is in expansion mode and had invested Rs.7.5bn capital during FY09. It plans to
infuse another Rs 5 to 6 bn in FY10 too giving a sense on growth plans ahead.
Based on these factors we
value the life business at 13x FY11E NBAP giving a value of Rs.4350 crore for
its 74% stake. This generates Rs.196 per share of Max India Ltd. The
expectations of raising the ceiling limit to 49% in FDI, shall be positive for
its insurance valuations.
Healthcare
business picks up – becomes cash positive
MHC operates eight centers in
Delhi & NCR, offering services in over 30 medical disciplines. This business
segment with a capacity of 712 beds as of now and 65% occupancy ratio has
achieved cash breakeven with 46% growth in EBIDTA to Rs28.7 crore in FY09.
EBIDTA margins have improved to 6.8% from 5.3%. It has around 1200 doctors and
3100 employees in the network. MHC has plans to add 20% more (140-150) beds this
year. If we
consider a 15% jump in sales for next two years, we generate an EBIDTA of Rs.456
crore in FY11E. Valuing this business at 12x EBIDTA, gives Rs.21 per share of
Max India.
Other
businesses doing well
Max Speciality Products (MSP)
produces a wide range of sophisticated barriers and packaging films. The total
revenue has risen from Rs.306 crore to Rs.370 crore, a jump of 21%. EBIDTA
margin has however declined from 16.2% to 13.6%. The company wants to expand
this business too with addition of 20000 tpa in capacity taking total capacity
to 50000 tpa by end FY10. MSP is being valued at Rs.13 per share based on
consensus estimates.
The clinical research
business continues to do well with revenue growth of 29% to Rs.14 crore. It made
a profit of Rs.1 crore in FY09. The company is executing 76 studies across 252
sites and had an order book of Rs.40 crore, growing 18% y-o-y.
Max India has started process
of venturing into health insurance business by way of a JV with U.K based Bupa
Group.
Risks & concerns
Insurance
- capital intensive business
The
insurance business is capital intensive and adverse economic conditions or tight
liquidity may result in inability to infuse capital by the company promoters.
Also in such circumstances, the company may not be able to achieve the kind of
growth expected in our estimates.
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