Shares of Max Financial Services climbed xx per cent in Wednesday’s trade after Axis Bank said it will buy the balance 7 per cent stake in Max Life Insurance from Max Financial Services, at a revised formula.
Kotak Institutional Equities said Max Financial’s valuations are inexpensive and that the fresh development has addressed uncertainty around the Max-Axis transaction.
Following the development, shares of Max Financial Services fell 0.3 per cent lower to Rs 768.25 on BSE. Kotak Institutional Equities sees the stock at Rs 1,000 level.
The scrip is down 28 per cent in the last one year. Kotak said uncertainty on partnership with Axis Bank and a lack of clarity on the economics of the partnership marred the stock performance. Axis Bank’s statement provides some comfort, it said.
The current agreement prescribes valuation of the deal as per Rule 11UA of IT ( i.e. book value). As per revised terms, the insurance business will be valued on DCF, Kotak Institutional Equities noted.
While the release does not disclose the revised valuation, Kotak said the revised valuation to be higher than current transfer price.
“We read this press release as a stamp of approval by the bank to the revised (higher) formula. The bank has likely worked our revised economics/feasibility at a higher price – with removal of commission caps, the bank is in a position to earn higher commissions from Max Life and other insurance companies. More importantly, we believe that this rests any uncertainty around the Max-Axis transaction, providing comfort to investors,” Kotak said.
Kotak said it reads the revision in valuation formula for the balance Max-Axis deal as a realignment with regulatory guidance and the stamp of certainty on the partnership. The focus now shifts to the next leg, ie merger of Max Financial Services and Max Life in which the bank will likely need to play a crucial role, it said adding that Max Financial valuations remain inexpensive and are still factoring some uncertainty on the eventual entity.
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